Public Disclosure Authorized Solomon Islands Systematic Country Diagnostic Priorities for Supporting Poverty Reduction & Promoting Shared Prosperity Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No.: 115425-SB June 1, 2017 1| World Bank Regional Vice-President Victoria Kwakwa Country Director Michel Kerf Senior GP Directors Carlos Felipe Jaramillo, Carolina Sanchez Practice Managers Ndiame Diop, Salman Zaidi Task Team Leaders Virginia Horscroft, Imogen Halstead, Carlos Orton Romero International Finance Corporation EAP Director Vivek Pathak Country Manager Thomas James Jacobs Senior Operations Officer (Strategy) Daniel Street Resident Representative and Task Team Leader Vsevolod Payevskiy Multilateral Investment Guarantee Agency Executive Vice President Keiko Honda Director MIGES Merli Baroudi Task Team Leader Paul Antony Barbour Cover Image Tom Perry Image Credits Pages 15, 32 Alana Holmberg Pages IV, XX, 2, 11, 21, 22, 47, 51, 55, 66, 67, 73, 76, 92, 99, 102 Tom Perry Pages 27, 37, 61, 86 Rachel Skeates-Millar Page 41 Stephen Yeo Page 43 Solomon Star | II Abbreviations ADB Asian Development Bank NDS National Development Strategy CBRM Community-Based Resource Management NEAP National Education Action Plan CBSI Central Bank of Solomon Islands NFD National Fisheries Developments CDF Constituency Development Fund NGO Nongovernmental Organization CSR Corporate Social Responsibility NMP National Mining Policy DFAT Australian Department of Foreign Affairs and Trade NPF National Provident Fund DHS Demographic and Health Survey NTF National Transport Fund DRM Disaster Risk Management NTP National Transport Plan DRR Disaster Risk Reduction OOP Out-of-pocket ECE Early Childhood Education PNA Parties to the Nauru Agreement EEZ Exclusive Economic Zone PNG Papua New Guinea EITI Extractive Industries Transparency Initiative PPP Public-Private Partnership EU European Union RAMSI Regional Assistance Mission to the Solomon Islands FAO United Nations Food and Agriculture Organization RDP Role Delineation Policy FSS Franchise Shipping Scheme RSE Recognized Seasonal Employer FTE Fixed Term Estate RSIPF Royal Solomon Islands Police Force GDP Gross Domestic Product RSPO Roundtable on Sustainable Palm Oil GFC Global Financial Crisis RTC Rural Training Centre GNI Gross National Income SCD Systematic Country Diagnostic GPG Guadalcanal Provincial Government SEZ Special Economic Zone GPI Gender Parity Index SFA Solomon Forestry Association GPPOL Guadalcanal Palm Oil Plantation Ltd. SI$ Solomon Islands Dollar GPRDA Guadalcanal Plains Resource Development Association SIEA Solomon Islands Electricity Authority HCC Honiara City Council SINEP Solomon Islands National Energy Policy HIES Household Income and Expenditure Survey SINSO The Solomon Islands National Statistics Office ICT Information and Communication Technology SISEP Solomon Islands Sustainable Energy Project IFC International Finance Corporation SIWA Solomon Islands Water Authority IHME Institute for Health Metrics and Evaluation SME Small and Medium Enterprise IMF International Monetary Fund SOE State-Owned Enterprise IRD Inland Revenue Department SPC Secretariat of the Pacific Community MEHRD Ministry of Education and Human Resource Development SWP Seasonal Worker Program MFMRD Ministry of Fisheries and Marine Resources Development TVET Technical and Vocational Education and Training MHMS Ministry of Health and Medical Services UN United Nations MID Ministry of Infrastructure Development VCO Virgin Coconut Oil MLHS Ministry of Lands, Housing, and survey VDS Vessel Day Scheme MoFT Ministry of Finance and Treasury WDR World Development Report MOU Memorandum of Understanding WDI World Development Indicators MP Member of Parliament WHO World Health Organization NCD Non-Communicable Disease   III | | IV Contents EXECUTIVE SUMMARY x 1. INTRODUCTION................................................................................................................. 1 2. COUNTRY CONTEXT......................................................................................................... 3 2.1 Economic Geography, Political Economy, and State Fragility..................... 3 Economic Geography .............................................................................................. 3 Political Economy ...................................................................................................... 7 Drivers of Fragility, Conflict, and Violence ....................................................... 9 2.2 Post-conflict Developments ................................................................................... 12 Post-conflict Economic Developments .............................................................. 12 Post-conflict Poverty Developments .................................................................. 15 2.3 Contemporary Sources of Risk and Resilience ............................................... 18 Key Sources of Resilience ....................................................................................... 18 Key Sources of Risk .................................................................................................. 19 3. ANALYTICAL FRAMEWORK ........................................................................................ 21 4. PILLAR 1: STRENGTHENING THE FOUNDATIONS OF WELL-BEING ............ 23 4.1 Peace, Security, and Justice ................................................................................... 24 Current Conditions and Constraints ................................................................... 24 Outlook and Opportunities .................................................................................... 25 4.2 Health ............................................................................................................................ 26 Current Conditions and Constraints ................................................................... 26 Outlook and Opportunities .................................................................................... 29 4.3 Education ..................................................................................................................... 30 Current Conditions and Constraints ................................................................... 31 Outlook and Opportunities .................................................................................... 34 4.4 Essential Services....................................................................................................... 35 Water: Constraints and Opportunities ............................................................... 36 Sanitation: Constraints and Opportunities ....................................................... 38 Waste Disposal: Constraints and Opportunities ............................................. 38 Energy: Constraints and Opportunities ............................................................. 39 4.5 Disaster Risk Management and Climate Adaptation .................................... 41 Current Conditions and Constraints ................................................................... 42 Outlook and Opportunities .................................................................................... 42 5. PILLAR 2: ACHIEVING INCLUSIVE AND SUSTAINABLE GROWTH................ 44 5.1 Agriculture and Fisheries ........................................................................................ 46 Agriculture ................................................................................................................... 46 Fisheries ........................................................................................................................ 50 5.2 Extractive Industries ................................................................................................. 53 Forestry ......................................................................................................................... 53 Mining ............................................................................................................................ 57 5.3 Urban Services ............................................................................................................ 60 5.4 Tourism .......................................................................................................................... 64 5.5 Labor Mobility ............................................................................................................. 68 5.6 Macro-fiscal Management Challenges ............................................................... 70 V| 6. PILLAR 3: MANAGING UNEVEN DEVELOPMENT ........................................................................ 74 6.1 Patterns of Uneven Development ............................................................................................... 75 Current Conditions and Constraints ........................................................................................... 75 Outlook and Opportunities ........................................................................................................... 79 6.2 Connectivity ........................................................................................................................................ 81 Transport .............................................................................................................................................. 81 Communications................................................................................................................................. 85 6.3 Other Systems for Managing Uneven Development, Volatility, and Shocks ................ 87 Horizontal Systems for Redistribution ...................................................................................... 88 Vertical Systems for Redistribution ............................................................................................ 90 7. CONCLUSION ............................................................................................................................................ 93 7.1 Summary of the Core Development Problem ......................................................................... 93 7.2 Priorities for Supporting Poverty Reduction and Promoting Shared Prosperity ....... 94 Critical Priorities ................................................................................................................................ 94 Next Tier Priorities ............................................................................................................................ 98 Other Priorities .................................................................................................................................. 101 7.3 Overarching Implementation Considerations .......................................................................... 101 7.4 Key Knowledge Gaps ....................................................................................................................... 102 BIBLIOGRAPHY ...................................................................................................................................................... 104 Boxes Box 1 Pacific Futures and Pacific Possible .................................................................................. 4 Box 2 Customary Land in Solomon Islands ................................................................................. 19 Box 3 Child Undernutrition in Solomon Islands ......................................................................... 27 Box 4 The Successful Reform of SIEA ........................................................................................... 40 Box 5 Solomon Islands Growth Prospects: Constraints and Policy Priorities ................. 44 Box 6 Land as a Factor of Production .......................................................................................... 47 Box 7 Agricultural Value Adding .................................................................................................... 48 Box 8 Solomon Islands’ Archipelagic and Oceanic Fisheries ............................................... 52 Box 9 Extractive Industries and Gender in Solomon Islands ................................................ 56 Box 10 Mining and the Challenge of Environmental Protection ............................................ 59 Box 11 Mining and the ‘Development Forum’ Model ................................................................. 59 Box 12 Solomon Islands’ Business Enabling Environment ....................................................... 62 Box 13 Access to Finance in Solomon Islands .............................................................................. 63 Box 14 Tourism and Women’s Economic Empowerment ......................................................... 65 Box 15 Threats to Tourism Assets ..................................................................................................... 66 Box 16 Institutional Strengthening for Labour Mobility ............................................................ 69 Box 17 Revenue Reforms ..................................................................................................................... 71 Box 18 Uneven Development, Migration, Customary Land, and the Tension .................... 75 Box 19 Public Land Management and Public Housing .............................................................. 80 Box 20 International Maritime Connectivity .................................................................................. 82 Box 21 Infrastructure PPPs for Industry Development .............................................................. 84 Box 22 ICT and Public Service Delivery .......................................................................................... 87 Box 23 The Political Economy of CDFs ........................................................................................... 89 Box 24 Volatility and Shocks at the Micro Level .......................................................................... 91 | VI Figures Figure 1 Map of Solomon Islands .............................................................................................................................................. 1 Figure 2 Size and remoteness from major markets ............................................................................................................ 3 Figure 3 Internal division and dispersion ............................................................................................................................... 3 Figure 4 Sectoral composition of real GDP (%) ................................................................................................................... 5 Figure 5 Current account composition, 2010–2015 ............................................................................................................ 5 Figure 6 Basic needs poverty across provinces, 2012/13 .................................................................................................. 6 Figure 7 World Governance Indicators - changes and comparators ............................................................................ 11 Figure 8 Country Policy and Institutional Assessment public sector management and institutions 11 scores – changes and comparators ........................................................................................................................ Figure 9 Real GDP, 1990–2016 (constant 1985 prices) ....................................................................................................... 12 Figure 10 Sectoral composition of real GDP growth ............................................................................................................ 12 Figure 11 Real GDP per capita ..................................................................................................................................................... 13 Figure 12 Total revenues and expenditures (constant prices), 2000–2015 .................................................................. 14 Figure 13 Projected expansion of working-age population, 2010–2040 ...................................................................... 14 Figure 14 Primary economic activity in rural and urban areas by gender .................................................................... 16 Figure 15 Average household income composition by rural and urban areas ............................................................ 16 Figure 16 Analytical framework for the Solomon Islands SCD ......................................................................................... 22 Figure 17 Links between consumption welfare and adult educational attainment, child health status, 23 access to sanitation, and employment status ..................................................................................................... Figure 18 Public expenditure on police and justice, health and education, 2006–2015 .......................................... 24 Figure 19 Key health indicators by GNI per capita, global comparison ........................................................................ 26 Figure 20 Provincial variation in selected health and health service indicators, 2013–2015 ................................... 29 Figure 21 Shares of household education by quintile, and by urban and rural area ................................................. 30 Figure 22 Shares of economic activity by education level, disaggregated by gender ............................................. 30 Figure 23 Age-level school attendance by gender and rural and urban areas ........................................................... 31 Figure 24 Primary and secondary enrolment rates by GNI per capita, global comparison .................................... 33 Figure 25 Education budget allocations ................................................................................................................................... 34 Figure 26 Access to essential services by GNI per capita, global comparison ........................................................... 35 Figure 27 Water source by quintile and by urban and rural areas .................................................................................. 36 Figure 28 Sanitation facilities by quintile and by urban and rural areas ....................................................................... 38 Figure 29 Source of energy for lighting by quintile and by urban and rural areas .................................................... 39 Figure 30 Employment by sector and gender ........................................................................................................................ 45 Figure 31 Employment status of household head by quintile ........................................................................................... 45 Figure 32 Annual fisheries harvest by value (SI$), 2007 ..................................................................................................... 50 Figure 33 VDS tuna catch (tonnes, thousands), 2014–15 .................................................................................................... 53 Figure 34 Possible scenarios for log exports .......................................................................................................................... 54 Figure 35 Forest rents and forest depletion ............................................................................................................................ 54 Figure 36 Doing Business index (1 = most business friendly) ........................................................................................... 62 Figure 37 Business Enterprise Survey - main constraints to business ........................................................................... 62 Figure 38 Number of visitor arrivals by air for leisure/vacation purposes, 2015 ........................................................ 64 Figure 39 Extent of emigration and remittances ................................................................................................................... 68 Figure 40 RSE approvals and SWP participants .................................................................................................................... 68 Figure 41 Total revenues by source (constant prices) ......................................................................................................... 71 Figure 42 Domestic revenue composition (constant prices) ............................................................................................. 71 Figure 43 Possible trajectories of external debt under alternative debt sustainability thresholds ...................... 73 Figure 44 Provincial patterns of poverty, income, major economic opportunities, and key transfers ................ 74 Figure 45 Birthplace of Honiara residents, 2009 ................................................................................................................... 77 Figure 46 Urban and rural population age-structure ........................................................................................................... 77 Figure 47 Variations in access to essential services in and around Honiara ................................................................ 78 Figure 48 Economic activity for working age urban residents – comparison across quintiles............................... 78 Figure 49 Central government grants to provinces .............................................................................................................. 88 Figure 50 Provincial grants by province, 2015 ........................................................................................................................ 88 Figure 51 Central government CDFs .......................................................................................................................................... 89 Figure 52 Cash and in-kind assistance given to other households and church and community groups, 90 by quintile ........................................................................................................................................................................ VII | Tables Table 1 Key indicators of well-being .................................................................................................................... 6 Table 2 Changes in key health and education indicators in the post-conflict period ......................... 17 Table 3 Changes in essential services access between the 2005/06 and 2012/13 HIES ................... 17 Table 4 Indicators of gender inequity .................................................................................................................. 18 Table 5 Top ten causes of disease burden, by disease/conditions, 1990–2015 ..................................... 28 Table 6 Gross and net enrolment by school level, and gender parity, 2014 ........................................... 31 Table 7 Proportion of primary school children achieving adequate literacy and numeracy 32 standards, 2013–2015 ................................................................................................................................. Table 8 Total number of schools by authority type, 2014 ............................................................................ 34 Table 9 Changes in SIEA operational performance, December 2007–September 2016 ................... 40 Table 10 Comparison of regional port charges .................................................................................................. 82 Table 11 Coefficients of variation for key import and export commodities (%) .................................... 91 Table 12 Key knowledge gaps ................................................................................................................................. 103 | VIII The Solomon Islands Systematic Country Diagnostic was prepared by a team led by Virginia Horscroft (co-Task Team Leader, Senior Economist, GMF10), Imogen Halstead (co-Task Team Leader, Senior Economist, GPV02), Carlos Orton Romero (co-Task Team Leader, Economist, GMF10) and Vsevolod Payevskiy (IFC-Team Leader, Resident Representative, CEAOP), with Douglas Porter (Consultant), Tobias Haque (Senior Economist, GMF06) and Caroline Sage (Senior Social Development Specialist, GSU02). Research assistance was provided by Kanya Raj (Team Assistant, EACNF). Background papers were prepared by Matthew Allen (Consultant), Daniel Evans (Consultant), Rishi Adhar (Consultant), and Nora Weisskopf (Transport Analyst, GTI02) and Kanya Raj (Team Assistant, EACNF). Jesse Doyle (Social Protection Economist, GSP02) prepared the ‘Institutional Strengthening for Labor Mobility’ Box, and Dina Nicholas (Senior Operations Officer, CASSB) prepared the ‘Tourism and Women’s Economic Empowerment’ Box. Contributions were provided by Martin Albrecht (Water & Sanitation Specialist, GWA02), Kosuke Anan (Senior Social Development Specialist, GSU02), Tijen Arin (Senior Environmental Economist, GEN2B), Angeline Bataanisia (Temporary), Renee Berthome (Operations Analyst, GEE09), Natasha Beschorner (Senior ICT Policy Specialist, GTI02), Stephen Close (Consultant), Carlo Corazza (Senior Financial Sector Specialist, GCCFM), Milissa Day (Senior Operations Officer, CEASY), Gerhard Dieterle (Adviser, GCCFM), Jesse Doyle (Social Protection Economist, GSP02), Sophie Egden (Governance Specialist, GGO28), Simone Esler (Disaster Risk Management Specialist, GSU08), Robert Gilfoyle (Senior Financial Management Specialist, GGO02), Jan von der Goltz (Economist, GPSJB), Tendai Gregan (Senior Energy Specialist, GEE02), Susan Ivatts (Senior Health Specialist, GHN02), Denis Jordy (Senior Environmental Specialist, GEN2A), Miguel Jorge (Senior Fisheries Specialist, GENGE), Takafumi Kadono (Senior Energy Specialist, GEE02), Adrian Koochew (Consultant), Bryan Land (Lead Oil and Gas Specialist, GEEX2), Becky Last (Operations Officer, CASSB), Zhentu Liu (Senior Procurement Specialist, GGO02), Myrna Machuca-Sierra (Education Specialist, GED02), Brenna Moore (Consultant, GFA02), Mark Moseley (Lead Lawyer, GCPPP), Isabel Neto (Senior Energy Specialist, GEE09), Dina Nicholas (Senior Operations Officer, CASSB), Kofi Nouve (Program Leader, GFA02), Alison Ofotalau (Communications Associate, EAPEC), Allan Oliver (Agricultural Specialist, GFA02), Tom Perry (Communications Officer, EAPEC) Melanie Phillips (Consultant), Anne Marie Provo (Research Analyst, GHN02), Maude Ruest (Economist (Health), GHNDR), Droumand Rupert (Health Specialist, GHN02), Junu Shrestha (Environmental Specialist, GCCPT), Milena Stefanova (Senior Operations Officer, GCFKE), Mika Torhonen (Lead Land Administration Specialist, GSULN), Daniel Street (Senior Operations Officer, CCEDR), Neelam Verjee (Senior Development Specialist, GCFKE), John Vivian (Senior Financial Sector Specialist, GFM02), Binh Thanh Vu (Senior Education Specialist, GED02), Sonya Woo (Senior Operations Officer, GSU02) and Nora Weisskopf (Transport Analyst, GTI02), with program support from Samantha Evans (Program Assistant, EACNF). The Systematic Country Diagnostic benefitted considerably from consultations with key government stakeholders, including the Office of the Prime Minister and Cabinet, Ministry of Finance and Treasury, Ministry of Development Planning and Aid Coordination, Ministry of Agriculture and Livestock Development, Ministry of Fisheries and Marine Resources, Ministry of Mines, Energy and Rural Electrification, Ministry of Forestry and Research, Ministry of Rural Development, Ministry of Culture and Tourism, Ministry of Commerce, Industry, Labour and Immigration, Ministry of Infrastructure Development, Ministry of Education and Human Resources Development, Ministry of Health and Medical Services, Ministry of Women, Youth and Children’s Affairs, Ministry of Meteorology, Environment and Conservation, Ministry of Lands, Housing and Survey, Honiara City Council, and the Central Bank of the Solomon Islands, as well as representatives from the private sector, civil society, international organizations, and development partners. Invaluable advice and suggestions were received from Edith Bowles (Consultant) and Anne Tully (Country Program Coordinator, EACNQ), as peer reviewers at the concept and decision stages. The team worked under the supervision of Ndiame Diop (Practice Manager, GMF10), Salman Zaidi (Practice Manager, GPV02) and Robert Utz (Program Leader, EACNF), with overall guidance from Michel Kerf (Country Director, EACNF), Thomas Jacobs (Country Manager, CEASY), Mona Sur (Manager, Portfolio and Operations, EACNF) and Guido Rurangwa (Representative, EACSB). IX | EXECUTIVE SUMMARY Introduction and Country Context Neither the economic geography nor the present political economy of Solomon Islands is particularly Solomon Islands is a small, remote archipelago conducive to the establishment of state institutions in the South Pacific that faces a fairly unique set capable of managing upcoming socioeconomic of development challenges. Following a period of change. The small, dispersed population and civil conflict that was brought to an end through remoteness from large markets increases the international intervention in 2003, the economy costs of public service delivery, constrains the has grown at an average annual rate of 5.5 percent. reach of infrastructure, and reduces the range This relatively strong aggregate growth performance of opportunities for private sector development. masks some key problems. First, growth has Private sector growth opportunities are largely declined recently, averaging only 2.9 percent confined to industries that can generate rents for the last four years, while the population has sufficient to outweigh the higher costs of production continued to expand at about 2 percent per year. that result from the small size of the domestic Average per capita incomes are still lower today market, high costs of transport for all traded items, than they were before the conflict began nearly and susceptibility to natural disasters. These are two decades ago. Second, the biggest driver of predominantly natural resource-based industries or growth in the post-conflict period has been logging, industries catering to niche markets. The resultant which has occurred at a grossly unsustainable rate spatial pattern of economic development is highly and is expected to decline sharply during the next uneven. In such a context, broader poverty reduction decade. Solomon Islands thus faces a pressing and economic development are critically dependent need for new sources of growth, but these are on the state having the capability to secure an highly constrained by its economic geography. appropriate share of the economic rents being Third, poverty remains extensive, despite having generated, and to redistribute them through public declined considerably since the end of the conflict. investment in health, education, and infrastructure An estimated 25.1 percent of Solomon Islanders provision across the country, both to share the live below the international US$1.90 per person per benefits with people not directly participating in day poverty line in 2011 purchasing power parity these industries, and to diversify the asset base of terms, and 56.7 percent live on less than US$3.10 the economy. Yet fundamental political economy per person per day. Fourth, providing access to dynamics in Solomon Islands militate against the basic services is extraordinarily challenging, given incentives for political elites to invest in effective the small population scattered very thinly across state institutions that are needed to do this, or to this vast archipelago. Fifth, there are major sources address national-level development challenges. of fragility in Solomon Islands, particularly arising from the limited reach and effectiveness of the Because of the weaknesses of state institutions, state, from development that is very uneven and consistent with Solomon Islands’ historical across space, and from climate change. experience, a variety of non-state and international actors will need to play important roles in managing Solomon Islands is now at a critical juncture in its upcoming and potentially risky socioeconomic development trajectory. The very high degree of change. The respective roles of the different state, international engagement in the post-conflict period non-state, and international actors are likely to has been considerably scaled back, in terms of both vary by function as well as with geography across financial assistance and the supplementation of state Solomon Islands, reflecting the existing diversity capacity. At the same time, Solomon Islands is likely in the nature and extent of governance challenges to embark on a transition from logging to mining and the different capacities of various actors and as the key driver of growth. If managed well, this institutions to effectively manage them. transition offers significant opportunities, yet it is equally subject to significant risks. Mining could lead This Systematic Country Diagnostic (SCD) to tensions and social disintegration within customary for Solomon Islands identifies key challenges landowning groups in mining areas. Tensions and and opportunities for achieving inclusive and grievances over the distribution of benefits within sustainable growth, to accelerate progress toward the island-provinces where mining occurs may the World Bank Group’s twin goals of reducing be scaled up into national-level conflict between extreme poverty and promoting shared prosperity. these island-provinces and the central government. The World Bank Group’s twin goals mirror the |X objectives of ‘sustained and inclusive economic 2007, real GDP per capita has still not surpassed growth’ and of having ‘poverty alleviated across its pre-conflict peak (see Figure A). This striking the whole of the Solomon Islands’ in the National circumstance is due to two factors: first, the low Development Strategy: 2016–2035. base of GDP per capita at the end of the conflict (some one-third below its level prior to the conflict); Recent Economic and Poverty Developments and second, relatively rapid population growth. According to the 2009 census, between 1999 and In the period since the end of the conflict, Solomon 2009 the population grew at an average of 2.3 Islands has made substantial progress with percent annually. Most concerning is the fact that, economic development, but that progress has been between 2012 and 2016, GDP growth has averaged quite uneven across space. The main contributors only 2.9 percent, with estimated population to economic growth have been logging (with rates growth of about 2 percent per year. At this rate, of extraction significantly exceeding the estimated it might be another decade before real GDP per sustainable yield), services (driven by expanded capita surpasses its pre-conflict peak. It is hard to public sector and international community spending imagine how that kind of outlook could meet the in the post-conflict context), and agriculture expectations of Solomon Islanders with respect to (including the post-conflict resumption of copra and rising living standards. palm oil production). Although real gross domestic product (GDP) surpassed its pre-conflict peak in Figure A: Real GDP per capita SI$ SI$ 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 Logging boom Tensions GFC 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 2000 2001 2004 2006 2009 2008 2003 2005 2002 2007 2010 2011 2014 2013 2015 1990 2012 1991 1994 1996 1999 1998 1993 1995 1992 1997 Source World Development Indicators (WDI). XI | In the period since the end of the conflict, Solomon 8 percentage points between 2005/06 and 2012/13. Islands has also made substantial progress with This implies that some 45,000 people were lifted poverty reduction, but that progress has again out of poverty over that period. Assessed on the been quite uneven across space and between basis of national poverty lines, basic needs poverty genders. Aggregate poverty rates appear to and food poverty is estimated to be higher in rural have declined—perhaps considerably. Significant areas—where 80 percent of the population live— differences in methodology between the last than in urban areas. There are major differences in two Household Income and Expenditure Surveys livelihood opportunities between rural and urban (HIESs) mean that the poverty rates from them are areas, as well as between men and women (see not directly comparable. However, based on work Figure B). There are also significant differences in constructing a consistent consumption aggregate rates of basic needs poverty between provinces, and national basic needs poverty line for the two underscoring the pronounced pattern of uneven surveys, poverty appears to have declined by development in Solomon Islands. Figure B: Primary economic activity in rural and urban areas by gender 100% Percentage of working-age population (aged 18-65) 6% 10% Subsistence 90% 13% 17% 7% For sale/ own business 80% 9% 19% Employed 30% 70% Student 60% 20% Inactive 51% 50% 10% 76% 40% 50% 30% 45% 13% 20% 10% 17% 0% Female Male Female Male Rural areas Urban areas Source World Bank staff estimates based on the 2012/13 HIES. Indicators of health and education show significant can be disaggregated by rural and urban area, with improvements in the post-conflict era, but this is the results in Table B, and show little increase in not the case for access to most essential services access to an improved water source or to improved and it is also difficult to discern improvements sanitation, either in Honiara or other provinces. in gender equality. Headline indicators of health There has, however, been a significant increase in and education status, shown in Table A, display access to off-grid electricity for lighting, particularly considerable improvement, although from in the provinces. The multifaceted nature of gender relatively low bases (particularly with respect to inequality makes it difficult to draw conclusions school enrolment). Disaggregated data are not about overall trends, but its pronounced extent currently available, however, to assess the extent of remains clear, not only with respect to livelihood improvement for the bottom two quintiles or analyze opportunities and leadership positions, but also separate rural and urban trajectories. Morbidity and with respect to the high incidence of violence mortality caused by non-communicable diseases has against women. also increased sharply over this period. Indicators of access to essential services based on the HIES Table A: Changes in key health and education indicators in the post-conflict period Infant mortality (deaths per 1,000 live births) 27.2 (2002) 23.6 (2015) Incidence of tuberculosis (per 100,000 people) 166 (2002) 86 (2014) Life expectancy at birth (years) 64.1 (2002) 67.9 (2014) Net primary enrolment rate 75.5 (2005) 88.4 (2014) Net junior secondary enrolment rate 34.3 (2006) 42.2 (2012) Source WDI and MEHRD 2015a. | XII Table B: Changes in essential services access between the 2005/06 and 2012/13 HIES Honiara Other Provinces Solomon Islands 2005/06 2012/13 2005/06 2012/13 2005/06 2012/13 Access to improved water source 93% 93% 77% 75% 79% 76% Access to improved sanitation 70% 72% 18% 21% 25% 27% Access to electricity for lighting 63% 72% 8% 42% 14% 45% - on the grid 63% 58% 7% 4% 13% 9% Source World Bank staff analysis of 2005/06 and 2012/13 HIES data. At the current juncture, Solomon Islands faces possibility that the pace of social and economic some pressing economic challenges. The primary change will outstrip the capacity of both formal and one is to develop additional sources of private informal institutions to adapt to new pressures. sector growth, within the constraints of economic geography, both to maintain macroeconomic Key sources of resilience include: stability and to provide better job opportunities to the young and fast growing population. Given • Customary institutions surrounding land the small margin between average levels of GDP and kinship. For most Solomon Islanders, growth and population growth in the last few years, access to customary land provides a place developing additional sources of private sector to live, access to water, a source of food, growth is a pressing challenge anyway. However, an opportunity to earn a livelihood, and a it is made more so by the unsustainability of the foundation for social identity and belonging. growth currently generated by logging, as well as The effects of population growth and climate the increased economic impact of natural disasters change are likely to challenge some aspects resulting from climate change. The SCD argues that, of this resilience over time and pose greater over the medium term, mining appears to be the risks of disputes over land and sea access, only industry in Solomon Islands with any prospect but the immediate risk to this source of of filling the macroeconomic space currently resilience is from the commercialization of occupied by logging. The transition to mining as land. As well as being a key source of social the key driver of growth would entail significant identity, kinship systems act as networks macroeconomic, conflict, and environmental risks. that can provide support for socioeconomic A second and related challenge is to address the advancement and for enduring periods of difficulties of the fiscal position, both immediately hardship, but this effect is weakened when and during the potential economic transition from kinship systems become overstretched. logging to mining. Three important dynamics contribute to the extent of this fiscal challenge: (a) • Customary and church systems of authority a significant decline in development assistance in that play a critical role in maintaining recent years; (b) limits to further domestic revenue social order. These provide mechanisms to growth (and the specific need to replace the revenue deal with disputes, social order problems, that will be lost when logging declines); and (c) the and contests over resources, particularly in need to meet the very high costs of public service rural areas and informal urban settlements. delivery emanating from Solomon Islands’ economic Though generally accessible, accepted, and geography, which climate change is adding to. effective in their own way, non-state forms of authority tend to be unable to mediate Contemporary Sources of Risk and Resilience and contain local problems that originate at a higher scale—as with logging-related Risk and resilience in Solomon Islands are best disputes—and can become overwhelmed understood in terms of the capacity of institutions by the extent of contemporary social order to manage social and economic change. These problems. If overwhelmed, these institutions institutions include both state and non-state can not only cease to serve as sources of institutions, with the latter playing some particularly resilience but some may become sources of important roles in Solomon Islands, given the limited risk, if the authority of their leaders is turned to reach of the state in some areas of social, economic, mobilizing protest, aggression, and violence. and political life. Customary and other informal forms of social organization act as a key source Key sources of risk include: of resilience, with a demonstrated capacity to adaptably deliver social order even in the absence • The commercialization of land, especially of a strong and capable state. Risks arise from the around extractive industry development. Commercialization could be a source of XIII | gain to most Solomon Islanders, if the in informal settlements, marked inequities existing widely dispersed ownership of between formal and informal areas, and and access rights to land were leveraged further urban expansion onto customary for the benefit of all of those with existing land, urbanization is likely to fuel disputes ownership and access claims. However, and grievances. to date, processes surrounding the commercialization of land have tended • Demographic and sociocultural change. As to marginalize the many and benefit the population growth rates continue to slow, few — typically a few powerful men. The dependency ratios will decline, potentially rise of ostensibly traditional, exclusive providing for increased incomes and ‘customary landowners’ as powerful actors productivity with the ‘demographic dividend’ with strong relationships or overlap with of a larger share of the population at working political elites, is a salient political economy age. However, negative consequences are development in the post-conflict years; also possible. While the evidence is not one that threatens to further marginalize conclusive, the presence of youth bulges has the interests of women and other men been associated with conflict and violence in the development process and to internationally, especially in the context undermine the role of customary land as a of limited employment opportunities and safety net against material dispossession. options for labor mobility. In Honiara, masculine identities can be associated with • The transition from logging to mining. collective and interpersonal violence among While this transition offers an important urban youth. Both formal and informal opportunity for Solomon Islands, because institutions are currently struggling to deal the political economy of large-scale with the violence and disorder associated mining could be more amenable to the with substance abuse among young males. development of effective state institutions than logging has been, achieving • The Regional Assistance Mission to the that political economy structure will be Solomon Islands (RAMSI) transition. While challenging and the risks of large-scale the external security guarantee remains in mining in the current political economy effect, the formal end of RAMSI in June 2017 context are extremely high. Large-scale may be treated by those with unresolved mining is likely to exacerbate disputes grievances from the earlier conflict as and conflict if (a) the wealth generated signaling a renewed opportunity to use from mineral resources accrues mainly to violence to pursue their objectives. Beyond foreign mining companies, limited numbers the sphere of security, the transition from of powerful male ‘landowners’, and a institutional support to central agencies central state that does not prioritize the through in-line staff under RAMSI to advisory use of them to enhance the reach of the support has already occurred, but the extent state or the delivery of public services; of that support is continuing to decline. In and (b) the social and environmental part, the continued withdrawal of advisors costs of mining accrue mainly to the reflects donor and government confidence people in the surrounding area and the in local capacity to undertake key state wider province. functions and a wish to bring the period of extraordinary post-conflict assistance to • Continued rapid urbanization. Like the an end. However, the further reduction in transition to mining, urbanization offers advisor presence in finance, in particular, several important opportunities to Solomon will raise governance and macroeconomic Islands — if it is well managed. These management risks in what is becoming a include specialization and productivity, more difficult fiscal context, by removing increased demand for agricultural and some of the insulation between vital fiscal other products from rural areas, economies and fiduciary management processes and of scale in the provision of essential services, the underlying political economy. and new forms of social identity and new . spaces for the voices of those previously more disempowered in social, economic, and political life. However, the risks of poorly managed urbanization are also high, particularly given the pronounced youth bulge. In the context of continued scarcity of job opportunities, lack of essential services | XIV Analytical Framework The role the analytical framework plays in the SCD is to help identify potential priority areas The analytical framework adopted for this SCD for accelerating poverty reduction and shared examines potential contributors to reducing prosperity in Solomon Islands. The first pillar extreme poverty and promoting shared prosperity focuses on provision of key services that contribute in Solomon Islands, while taking account of directly to people’s well-being, which economic economic geography and political economy geography makes particularly challenging in this factors. In so doing, it draws on key lessons from context. The second pillar examines potential the 2009 and 2017 World Development Reports sources of economic growth, together with the (WDRs), ‘Reshaping Economic Geography’ and likely extent of their inclusiveness and sustainability. ‘Governance and the Law’. The analytical framework Not only are possible sources of private sector is organized across three broad and interrelated growth circumscribed by economic geography, but pillars: (a) strengthening the foundations of well- their feasibility, inclusiveness, and sustainability are being; (b) achieving inclusive and sustainable growth; also conditioned by political economy factors. The and (c) managing uneven development (Figure third pillar focuses on the overarching challenge C). Economic geography and state fragility are of managing uneven development, recognizing cross-cutting themes in the analysis of constraints both that development will be highly uneven as a and opportunities under each pillar. consequence of economic geography and that spreading the benefits from centers of growth as widely as possible will be critical to improving equity and reducing fragility. Figure C: Analytical framework for the Solomon Islands SCD Poverty Reduction & Shared Prosperity Economic Geography Strengthening the Achieving Inclusive Managing Uneven Foundations of and Sustainable Development Well-being Growth State Fragility Peace, Justice Agriculture & Fisheries Patterns of Uneven & Security Development Extractive Industries Health Urban Services Connectivity (Transport Education & Communications) Tourism Essential Services Other Systems for (Water, Sanitation, Labour Mobility Waste & Energy) Managing Uneven Macro-fiscal Development, Disaster Risk Management Volatility & Shocks Management & Challenges Climate Adaptation XV | Priorities for Supporting Poverty Reduction and on a sustained basis. More productive and more and Shared Prosperity resilient agriculture and fisheries is vital to mitigate pressures that may otherwise build with population In selecting a set of strategic priorities for growth and climate change toward disputes over supporting poverty reduction and shared increasingly scarce land and sea resources, as well prosperity from among those identified by the as to reduce push factors in urban migration. While analytical framework, the SCD uses three main there is reasonable certainty over the constraints considerations. The first is the relevance of the area faced and the technical aspects of ways to address to security (mitigating the risks of fragility, conflict, them, there remains some uncertainty over effective and violence), to sustained and inclusive growth, means to assist producers, especially given the and to equity (a substantial positive impact on the limited state reach. While political elites are well-being of the poor and less well-off). The time clearly very interested in rural development, they frames over which these impacts are expected is do not prioritize supporting it through core state part of this consideration. The second is our level systems. The extent of political concern with rural of confidence that the relevant constraints have development would imply, however, that there is been accurately identified along with technically scope to achieve the necessary alignment, including feasible means of addressing them. The third is the through changing ideas about the most effective degree of alignment between the priority and what ways to improve rural livelihoods. can feasibly emerge from the policy arena, given the political incentives of relevant elites under the Supporting the effective functioning and existing distribution of power in the country. In line connectivity of urban and other growth centers, with WDR2017, this is not a static consideration to increase their contribution to growth and but instead takes into account the potential for well-being in both urban and rural areas the policy arena to be reshaped through the levers of contestability, elite incentives, and the ideas, It is critical to improve the functioning and preferences, and beliefs of participants in the policy connectivity of Honiara, in particular, as well arena. It also accounts for how, over time, policy as other growth centers around the country, to outcomes might alter the underlying distribution increase their ability to drive broader economic of power to allow a broader range of policy options growth and improve the well-being of urban and in future. rural communities. The functioning and connectivity of the urban service economy of Honiara as well The first tier of priorities is composed of those as of other growth centers is vital not only to the that are highly relevant to growth, equity, and livelihoods of urban residents, but also to livelihoods security, and where there is some possibility— in all communities connected with them by land or even if small—of achieving an alignment with sea. Potential impacts on the urban poor (many of the incentives of political elites. These first-tier whom are unable to access essential services and priorities can be viewed as the core of a coherent have limited livelihood opportunities) and the rural and mutually dependent reform program with poor (who similarly lack access to essential services the potential to help Solomon Islands realize its and need market access for their products) are very immediate opportunities (mining development and significant. The functioning and connectivity of urban growth) while managing its most pressing Honiara is critical to security, because private sector fragility risks (safeguarding agricultural livelihoods, activity in the urban service economy is a key channel sharing the benefits of growth as widely as possible, for the redistribution of natural resource rents in the and supporting the development of institutions that broader economy. Maximizing opportunities through attempt to manage an inevitably disruptive period backward linkages from that spending in urban and of socioeconomic change). rural areas is likely to support stability. While there is considerable certainty about what constrains the Supporting the productivity and resilience functioning and connectivity of Honiara and other of smallholder agriculture and fisheries, growth centers, there is considerable uncertainty about how these constraints could be eased, given including their contribution to nutrition the way power, authority, interest, and capability are distributed among many different state and non- It is critical to improve the ability of Solomon state entities at many different levels. The extent of Islanders to obtain food and nutrition through political antipathy toward urbanization and urban smallholder agriculture and fishery activities, issues indicates a lack of alignment with political an ability that the majority of the population interests, yet political elites are strongly interested depend on, but which is currently under threat. in connectivity to spread the benefits of growth into The productivity and resilience of both subsistence rural areas. This suggests an avenue for an indirect and semi-commercial agriculture and fisheries is interest in the functioning of Honiara and other of immediate and direct importance to the well- growth centers. Enhancing contestability in the being of the rural population, as well as many urban policy arena could help this alignment and should residents, with nutrition of particular significance be feasible given the extent of private sector, civil to child health and cognitive development. A society, and municipal interest in tackling urban vibrant agricultural and fisheries sector has the management concerns. Successes in improving the potential to underpin growth over the short term functioning of Honiara are likely to further enhance | XVI contestability, because of the importance of the scale mining operation in a fixed location (relative urban space for the voices of women and youth. to many, small, remote, and constantly shifting logging operations). Increasing the contestability of Supporting effective mining governance and the policy arena will be critical to promote equity measures to spread the benefits of mining in benefit-sharing and support the mitigation of conflict risks. It is critical for Solomon Islands to secure the development of its mining industry as a driver of Strengthening local-level institutions of economic growth and to spread the benefits as public authority far as possible through backward linkages and nationally through public expenditure. The SCD It is critical for Solomon Islanders to have access argues that Solomon Islands in the unenviable to some form of local public authority, to support position of depending on large-scale mining to security and justice, and to increase their ability to manage its transition out of post-conflict levels of articulate their priorities to the state for the use of aid and unsustainable logging. The end of logging public resources. Local-level law and order is not presents major challenges to economic growth only critical to security and social cohesion, but is and macroeconomic sustainability. Whether mining also a foundation for economic activity and growth does actually replace logging’s contributions to and also for equity. Institutions of public authority macroeconomic aggregates over the medium term, at a decentralized level can be important means depends both on the timing of the decline in logging for linking citizens into the state system, providing and the effectiveness of the governance of mining. potential for them to articulate their priorities Making mining governance sufficiently effective and for the state to respond to those. This is of to secure the benefits and mitigate the risks of particular significance in an economy dominated mining is vital. The industry itself is likely to create by natural resource rents, where public expenditure relatively few direct jobs, though additional jobs and is an important means for sharing the benefits of wider growth benefits could come from backward natural resource-based industries with the wider linkages to agriculture, fisheries, transport, and other population. The Community Officers Program that services and from the infrastructure and essential the World Bank is supporting in Solomon Islands service developments around mining operations. is demonstrating good results, both in local- More important is likely to be public expenditure level dispute resolution and in linking people to on human and physical capital that the state could the broader state system. This suggests that an make if it secures an appropriate share of the rents effective approach to supporting the development from minerals extraction. Spreading the benefits of local public authority has emerged. Part of its as widely as possible through backward linkages effectiveness is due to its flexibility—even between and public expenditure will be vital to mitigate the the two provinces where it is established, there conflict risks associated with large-scale mining, as are significant differences in the way it operates. will stakeholder benefit-sharing arrangements and This flexible approach should enable its successful effective environmental regulation. There is a solid expansion to other provinces, where it can also body of knowledge on what is needed to enable take contextually appropriate forms to fill the same mining development to drive broader economic types of functions. The local level appears to be a growth and contribute to public investment in human site of serious investment by political elites. The and physical capital. There is also growing experience experience to date with the Community Officers in relevant comparator countries, like Papua New Program indicates significant political interest in Guinea, on effective ways to manage conflict risks. local-level institutions of public authority and serious The incentives for political elites to support mining investment by senior policy makers in supporting development are obvious, but to date this has not these institutions to work and in considering how extended to effective mining governance. Given just they can serve an expanded set of purposes over how big the gains from effective mining governance time and space. could be in Solomon Islands, it must be possible for political elites to be better off with access to the This next tier of priorities is composed of those that larger pie that effective governance could yield, are highly relevant to growth, equity, and security, than under the current approach. At the same time, but where alignment is unlikely to be achievable in there is scope for the political economy dynamics of the near term. Or, in the case of tourism, there are more the prospective large-scale nickel mining to be quite immediate economic challenges Solomon Islands has different from the mining (and logging) preceding to address, for tourism investment to yield returns. it, and this could facilitate the emergence of more pro-development political economy dynamics. This • Supporting the provision of quality, basic centers on the interests of a large-scale, long-life education for all. Tackling the quality of mine with heavy up-front investment in maintaining basic education at all levels, as well as access a long-term social license to operate, which could to it at the secondary level in particular, is support—or even require—the existence of public highly relevant to equity and long-term authorities capable of containing conflict risks economic growth opportunities, as well as (including by mitigating spatial disparities through to social cohesion, citizen engagement and effective public investment). It also centers on public sector performance. Limited quality the feasibility of the state reckoning with a large- of and access to basic education appears XVII | to be a matter of both supply and demand. • Supporting the provision of better Supply-side factors (including school quality health services for all. Improving places, qualified teachers, and learning health service access and quality is clearly materials) have received considerable relevant to well-being, equity, and long- attention to date, though significant gaps term growth. Considerable attention has remain and efforts to fill these remain been paid to supply-side factors to date, important. Demand-side factors (including with considerable success, making further accountability for teacher performance and improvement in many areas of health less school management) have received some of a pressing concern than in education, for attention, but there has been little progress instance. However, unlike in education, there in education authorities or communities are some initiatives underway in health holding teachers and schools to account. that have some prospect of improving the Even if communities value quality education, accountability and performance of the health there appears to be little immediate system and some prospect of sustainability prospect of community-level accountability due to their potential alignment with mechanisms being effective, if they are not the interests of political elites. These backed by vertical accountability. That is a initiatives include deconcentrating power very challenging situation to change, given and responsibility to more appropriate both the near-exclusive political interest levels. One area that is pressing is child in tertiary scholarships and the myriad of undernutrition. In addition to addressing school sites that need to be accounted for. nutritional concerns in agriculture and fisheries (as above), it is clearly important • Supporting significantly expanded access for measures to tackle undernutrition in the to improved water, improved sanitation, and health sector to be prioritized. However, like waste disposal services. Expanding access measures in agriculture, this will only tackle to these services is critical to well-being, part of the problem—with multi-sectoral in particular for the poor and less well-off. strategies required, including addressing Expanded service provision would also have issues connected with low status of women. important complementary benefits for the environmental (affecting the benefits people • Catalyzing significant tourism can derive from environmental assets, as in development. Tourism offers Solomon agriculture and fisheries, as well as the long- Islands the opportunity to transform its term potential of tourism to be a driver of long-term growth trajectory, with the growth). Whereas in urban areas, improving growth it generates potentially inclusive and access to these services is largely about sustainable. It offers the prospect for more ensuring sufficient operational capacity of widely distributed economic power than the utilities and resolving the impediment to is the case for extractive industries, which access that utilities are making of occupancy could also ease political economy constraints titles, the situation is different in rural areas. on future development. Supporting this It would be valuable to build an evidence development is critical, beginning with a base on the variety of approaches taken prefeasibility study for Western Province, toward service provision by communities, to identify what investors regard as the key Constituency Development Funds, gaps to fill to make tourism an investible provincial authorities, central government, proposition for the private sector and to donors and nongovernmental organizations assess what the market potential could be. (NGOs), to understand what has worked, in If high-level support from the state can be which contexts, and why. With respect to secured, a capable development partner alignment, access to improved water tends could then take the lead on coordinating to be prioritized by communities, but this is work on the necessary infrastructure less true of sanitation and waste disposal. developments to enable private sector At the current juncture, it is difficult to see tourism investment to realize that potential. how state or non-state providers would have Tourism sector development is unlikely to the reach, resources, or impetus to provide be feasible if more immediate challenges the kind of sustained support needed of growth and macro-fiscal stability are not to create demand for behavior change addressed effectively. in these areas. | XVIII • Supporting stronger fiscal and public • Projects should account for the economic expenditure management. This is extremely geography and political economy of important for growth, equity and security Solomon Islands. A thorough understanding (particularly through effective service of the economic geography and political delivery). There is a history of effective economy context is a prerequisite for judging international engagement in customs and whether projects are feasible and risk altering revenue administration, where there is the distribution of power in ways impeding some alignment with political interests. pro-development policies in future. Important gains have been made and continued assistance would be valuable. • Trade-offs between immediate project Extensive external assistance has also effectiveness and the broader implications been provided for most areas of fiscal for state capability of parallel systems and public expenditure management in should be explicitly accounted for. the post-conflict period, but the feasibility Solomon Islands’ experience shows how of continued engagement being useful is resorting to parallel systems can weaken questionable. Misalignment with prevailing the impetus to strengthen state capability, political incentives, rather than the lack of with weak state capability in turn justifying technical capacity, is currently the binding the further resort to parallel systems. constraint to sustainable improvement on Any resort to parallel systems should be budget formulation, budget execution, and considered very carefully, particularly expenditure management. because of the resultant distortion of vital local accountability relationships. • Establishing formal social protection systems. Given how exposed especially • Engagements should follow an iterative poorer households in Solomon Islands are to approach to addressing the identified volatility and shocks and how limited their development problems. Donor engagements capacity to afford the goods and services are likely to be contested and may yield they need may be in the wake of large-scale unexpected outcomes, making iterative negative shocks, there seems a clear case approaches, with room for periodic for formal social protection systems for evaluation and flexibility to alter the poor and vulnerable households. There is approach critical to project effectiveness. a need, however, to gather evidence on the extent to which and circumstances in which people fall through the gaps of the informal systems, as a basis for designing contextually Foreword, Meg appropriate formal systems. Experience in Melanesia would suggest there is virtually Ta y l o r F o r e w o r d , no chance of securing political support for such systems, at least in the medium-term, Victoria Kwakwa but this could be considered an area of such significance to the poor that it warrants establishment through parallel systems with development partner support, potentially on a long-term basis. The SCD suggests the following broad principles as overarching implementation considerations for engagements and projects in Solomon Islands: • Potential engagements should be carefully screened for fragility risks, upstream. Donor engagements may exacerbate drivers of fragility, conflict, and violence if benefits are distributed unevenly across existing social fractures. Dedicated resources for fragility analysis will be important, and the analysis must occur upstream to enable sectors and approaches to be chosen in light of fragility risks. XIX | | XX 1. INTRODUCTION 1. Solomon Islands is a small, remote during the next decade. Solomon Islands thus faces archipelago in the South Pacific that faces a a pressing need for new sources of growth, but these fairly unique set of development challenges are highly constrained by its economic geography. (Figure 1). Following a period of civil conflict Third, poverty remains extensive, despite having that was brought to an end through international declined considerably since the end of the conflict. intervention in 2003, the economy has grown at An estimated 25.1 percent of Solomon Islanders live an average annual rate of 5.5 percent. This relatively below the international US$1.90 per person per day strong aggregate growth performance masks some poverty line in 2011 purchasing power parity terms, key problems. First, growth has declined recently, and 56.7 percent live on less than US$3.10 per averaging only 2.9 percent for the last four years, person per day. Fourth, providing access to basic while the population has continued to expand at services is extraordinarily challenging, given the about 2 percent per year. Average per capita incomes small population scattered very thinly across this are still lower today than they were before the vast archipelago. Fifth, there are major sources of conflict began nearly two decades ago. Second, the fragility in Solomon Islands, particularly arising from biggest driver of growth in the post-conflict period the limited reach and effectiveness of the state, from has been logging, which has occurred at a grossly development that is very uneven across space, and unsustainable rate and is expected to decline sharply from climate change. Figure 1: Map of Solomon Islands 1| 2. Solomon Islands is now at a critical juncture 4. This Systematic Country Diagnostic (SCD) in its development trajectory. The very high degree for Solomon Islands identifies key challenges of international engagement in the post-conflict and opportunities for achieving inclusive and period has been considerably scaled back, in terms sustainable growth, to accelerate progress toward of both financial assistance and the supplementation the World Bank Group’s twin goals of reducing of state capacity. At the same time, Solomon Islands extreme poverty and promoting shared prosperity. is likely to embark on a transition from logging to The World Bank Group’s twin goals mirror the mining as the key driver of growth. If managed well, objectives of ‘sustained and inclusive economic this transition offers significant opportunities, yet it growth’ and of having ‘poverty alleviated across the is equally subject to significant risks. whole in Solomon Islands’ National Development Strategy: 2016–2035 (NDS). The analytical 3. Neither the economic geography nor the framework adopted for the SCD focuses on potential present political economy of Solomon Islands is contributors to reduce extreme poverty and promote particularly conducive to the establishment of shared prosperity in Solomon Islands across three effective state institutions. The small, dispersed broad and interrelated pillars: (a) strengthening the population increases the costs of public service foundations of well-being; (b) achieving inclusive delivery, constrains the reach of infrastructure, and and sustainable growth; and (c) managing uneven reduces the range of opportunities for private sector development. Economic geography and state development. At the same time, fundamental political fragility are treated as cross-cutting themes. The economy dynamics militate against the incentives for SCD is structured as follows: political elites to invest in effective state institutions and address national-level development challenges. • Section 2 sets out the country context; Consistent with Solomon Islands’ historical • Section 3 presents the analytical framework experience, a variety of non-state and international actors are also likely to need to play important roles for the SCD; in managing upcoming socioeconomic changes. • Sections 4, 5, and 6 identify the status, The respective roles of different state, non-state, constraints, and opportunities in each of and international institutions are likely to vary by the three pillars; and function as well as with geography across Solomon • Section 7 identifies key development Islands, reflecting the existing diversity in the nature and extent of governance challenges and the priorities for Solomon Islands, based on the preceding analysis. different capacities of various actors and institutions to effectively manage them. |2 2. COUNTRY CONTEXT 5. This section provides an overview of the it is also extremely remote—being among the ten country context of Solomon Islands. It briefly countries in the world that are most remote from sets out the interrelationships between economic large markets, as measured by GDP-weighted geography, political economy, and state fragility and distance (Figure 2). In addition, it exhibits a high explains how these played out in the context of the degree of internal dispersion and division (Figure 3). recent civil conflict. It then outlines key economic Its territory consists of nearly 1,000 islands with a and poverty developments in the years since the total land area less than half the size of Tasmania, conflict, before summarizing contemporary sources scattered across a vast area of ocean: from Choiseul of risk and resilience. in the northwest, to the Santa Cruz Islands 1,500 km to the southeast (roughly equivalent to the distance between London and Rome). The population is 2.1 Economic Geography, Political scattered across some 90 of the islands in the archipelago, with a population density of only 20.8 Economy, and State Fragility people per km2. The population is divided not only by the ocean between islands but by mountainous 6. Economic geography, political economy, terrain within most islands. A combination of steep and state fragility are fundamentally interrelated topography, poor soils, and very high average levels in Solomon Islands. These factors have combined of rainfall in many places means that agricultural to shape the recent economic development and land represents only 3.9 percent of the total land conflict in Solomon Islands and will continue to shape area. Nearly 80 percent of the population reside its future development opportunities, constraints, in rural areas, with rural villages often comprising and risks. fewer than 20 households. The people are mainly Melanesian, with small Polynesian and Micronesian Economic Geography communities, as well as small Asian (mainly ethnic Chinese) and Caucasian migrant groups. Some 70 7. The economic geography of Solomon distinct languages are spoken in Solomon Islands, Islands is unusually challenging. Not only is it a very with Solomon Pijin the lingua franca and English the small state with a population of around 584,000,1 official language. Figure 2: Size and remoteness from major markets Figure 3: Internal division and dispersion2 16,000 Forest (%) 140 Average GDP-weighted distance from markets (km) 14,000 120 100 12,000 Number of 80 Mountains (%) inhabited 60 islands 40 10,000 20 0 8,000 6,000 Distance to Population main markets per sq km (100 kms) 4,000 10k 100k 1m 10m Population (logarithmic scale) All Countries Other Small States Urban Population (%) PICs Solomon Islands Solomon Islands Median small economy Source World Bank 2011 Source WDI 1 This estimate is the latest reported in the WDI for 2015. The Solomon Islands National Statistics Office (SINSO) estimates the population at 642,000 for 2015. 2 Note that the number of inhabited islands comparator is only for small economies that are island states. 3| 8. This economic geography has profound It also reduces the extent to which these states implications for private sector activity and public are likely to be able to realize agglomeration service delivery in Solomon Islands. Small states effects, including the productivity benefits of that are near large markets can still take advantage knowledge spillovers between firms and workers. of economies of scale in production through Internal dispersion and division exacerbate these specialization and trade, but high transport costs disadvantages by fracturing the already small undermine the extent to which openness can offset domestic market, further increasing the already the disadvantages of smallness for states that are high costs of basic infrastructure provision and remote from large markets.3 High transport costs for militating against the global appeal of locating all traded inputs and products, together with lack production in such states. The combination of of economies of scale in the provision of the basic small size, remoteness, and internal dispersion infrastructure required for private sector activity, and division can also prevent the realization push up the total cost of goods and services in small of economies of scale in the provision of many remote states (see Box 1). This limits their export types of infrastructure (for instance, energy and industries to those that can secure premium prices international ports) and public services (for instance, in global markets, such as natural resource-based regulatory frameworks and general policy making), industries or industries catering for niche markets. making their provision disproportionately costly.4 BOX 1 PACIFIC FUTURES AND PACIFIC POSSIBLE The World Bank’s Pacific Futures (2011) and Pacific Possible (2017) work recognizes the structural barriers to international competitiveness and economic growth in the Pacific Islands posed by small population size, remoteness from major markets, and internal dispersion and division. It also recognizes the constraints posed by their vulnerability to external shocks and environmental fragility. Since these structural barriers undermine global competitiveness in manufacturing and service industries, this work suggests that potential drivers of growth in the Pacific Islands will be limited to a few sectors where natural endowments enable these structural barriers to be overcome, because the rents that can be generated from these geographically specific natural endowments can potentially cover the higher production costs. This work focuses on fisheries, minerals, and tourism and also emphasizes the importance of international labor mobility and long-term, predictable, and significant levels of aid provided through country systems for improving the living standards of Pacific Islanders. 9. Economic geography clearly shapes the slightly greater importance of public administration structure of the economy in Solomon Islands and in the services sector. The composition of the the way it is integrated into the global economy. current account gives an indication of how economic The largest sector of the economy is the agriculture, geography affects Solomon Islands’ position in the fisheries, and forestry sector (Figure 4). It is global economy, with foreign exchange receipts dominated by smallholder agriculture (subsistence dominated by log exports, other commodity and cash crop) and subsistence fisheries, as exports, services receipts, and aid (Figure 5). well as by logging. The scarcity of large areas of reasonably flat agricultural land means that large- 10. The structure of private sector activity and scale agriculture plays a fairly limited role. The the scope of public service delivery both contribute services sector is the second largest sector, within to uneven development in Solomon Islands. which public administration is significant but The state, concentrated in the capital Honiara, tourism-related services are still very modest. The has underpinned the growth of an urban service industrial sector is extremely limited (but does economy, while natural resource extraction has represent a slightly larger share of the economy largely occurred in the form of enclaves, amidst an when mining is underway). Strikingly, there has otherwise predominantly rural, subsistence-based been no structural transformation of the economy economy. At the same time, reflecting the very high over the four decades since independence in 1978. cost of providing infrastructure and services to such The significant changes that have occurred have small pockets of people spread so widely across such been the growing importance of logging in the divided territory, access to infrastructure and public agriculture, fisheries, and forestry sector and the services has to some extent been concentrated 3 Winters and Martin (2004). 4 Horscroft (2014). |4 in Honiara (and to a lesser degree other urban lower in rural areas, with historically poor education areas) and achieving quality has been a significant quality indicated by low functional literacy rates challenge, particularly in rural areas. This has among adults (7–34 percent, depending on the accentuated uneven development between urban province).5 While health indicators show much and rural areas and among different rural areas, less divergence between rural and urban areas—a through the varying extent of infrastructure and testimony to the reasonable coverage of health services and the restricted ability of rural people services across the country—rural and urban to connect to and benefit from urban and other averages conceal considerable variations between centers of growth. Comparisons of access to provinces. These issues will be explored in more improved water, sanitation, and electricity show detail in subsequent sections. stark contrasts between rural areas—where the vast majority of people live—and urban areas (Table 1). Educational levels are also significantly Figure 4: Sectoral composition of real GDP (%) Logging Non-logging Agriculture Mining Non-mining Industry Services Source Central Bank of Solomon Islands (CBSI). Figure 5: Current account composition, 2010–2015 100% Transfers 100% Other Transfers 90% Income 90% Aid 80% 80% Other Income Fishing Licenses 70% Services 70% Services 60% 60% Other goods 50% 50% Fish 40% Other Goods 40% Minerals 30% 30% 20% Fuel 20% Logs 10% 10% Food 0% 0% Current Account Inflows Current Account Outflows Source CBSI, International Monetary Fund (IMF), World Bank staff estimates. 5 Asia South Pacific Association for Basic and Adult Education/Coalition for Education Solomon Islands administered functional literacy tests in Honiara (2007), Malaita (2007), Isabel (2010), and Renbel (2010). 5| Table 1: Key indicators of well-being Indicator Rural Urban Total Improved water source (% of households, 2012/13) 73 92 76 Improved sanitation (% of households, 2012/13) 16 68 27 Electricity for lighting (% of households, 2012/13) 41 60 45 Grid electricity (% of households, 2012/13) 0 50 9 Infant mortality rate (per 1,000 live births, 2007) 27 23 26 Stunting (% of children under five, 2012/13) 38 36 38 Childbirth attendance by skilled personnel (% of births, 2007) 83 94 85 Attended primary school (% of working-age population, 90 96 91 2012/13) Attended high school (% of working-age population, 2012/13) 42 69 48 Poverty headcount, national food poverty line (% of 5.3 0.0 4.4 population, 2012/13) Poverty headcount, national basic needs poverty line (% of 13.6 9.1 12.7 population, 2012/13) Source World Bank staff estimates based on the 2012/13 HIES; SINSO and World Bank 2015; SINSO 2009; MEHRD 2015a. 11. Provincial-level analysis of the 2012/13 is estimated to be relatively low in Malaita, its large Household Income and Expenditure Survey (HIES)6 population still means it has the third largest share also indicates uneven development in Solomon of poor people in Solomon Islands. Although there Islands, with some significant differences in the is clearly considerable spatial variation in poverty incidence of poverty between provinces. As rates, the dominance of subsistence agriculture and Figure 6 shows, poverty rates are highest in Makira, fisheries in rural Solomon Islands likely prevents Guadalcanal, and Honiara.7 Based on absolute even larger variation, acting as a floor under the numbers of poor people, the largest share of the well-being of rural Solomon Islanders, however poor live in Guadalcanal, then Makira, Malaita, and disconnected they may be from centers of growth.8 Honiara. Thus, even though the incidence of poverty Figure 6: Basic needs poverty across provinces, 2012/13 35% 28,000 Poverty rate (%, left axis) Percentage of the population living in basic needs poverty Number of poor (right axis) 30% 24,000 Solomon Islands Population living in b asic needs poverty 25% 20,000 20% 16,000 15% 12,000 10% 8,000 5% 4,000 0% 0 Choiseul Western Temotu Honiara Rennell-Bellona Isabel Malaita Guadalcanal Makira Central and Source 2012/13 HIES. Province 6 This SCD draws heavily on World Bank staff analysis of unit-record data from the 2012/13 HIES. To analyze and disaggregate the data from a welfare perspective, the analysis focuses on the records for which complete consumption aggregates were available (re-weighted appropriately). As a result, some indicators might deviate slightly from equivalent statistics published elsewhere (such as SINSO’s comprehensive HIES report). The SCD primarily focuses on the national measure of basic needs poverty in examining the nature of deprivation within and across Solomon Islands. The global poverty rates referred to earlier (based on the 2011 purchasing power parity US$1.90 and US$3.10 lines) are used to provide an international perspective only. 7 During the 2012/13 HIES, economic activity in parts of Makira was affected by flash floods, landslides and cyclone damage, so the reported high incidence of poverty might not be found in a different year. 8 Preliminary formulations of poverty maps constructed using small area estimation techniques also show considerable spatial variation in poverty. Wards with relatively high rates of poverty are found in seven of the nine provinces, including constituting half of the wards of Honiara. |6 Political Economy 9 practiced entails considerable instability. Floor crossing has been frequent, with only two post- 12. In Solomon Islands, the main holders of independence governments ever seeing out a full political and economic power have not forged a parliamentary term. The electoral system is also long-term political settlement in favor of investing highly skewed against Honiara: at the time of the in effective state institutions. Internationally, 2009 census, nearly 16 percent of the population effective state institutions have typically emerged resided in Honiara, but it has only 6 percent of the through the gradual institutionalization of bargains parliamentary seats. among and between elite coalitions, often in the presence of external or internal security threats.10 14. These political institutions intersect with Such durable and institutionalized pact formation and reinforce a social context in which local allows political elites to extend their time horizons for identities and affiliations are predominant. The political action and creates a joint interest between presence of some 70 distinct living languages political and economic elites in securing resources in Solomon Islands gives some indication of the to build and consolidate stable state structures. historical fragmentation of the population, which The political economy of Solomon Islands actively ethnographic research suggests was characterized militates against such stable pact formation, with by diverse, fluid, decentralized, and relatively weak, non-durable, and monetized transactional egalitarian small-scale societies in pre-colonial times. linkages between economic and political elites Primary identities tended to reside locally, with instead. Class-based social and ideological extended kinship groups. Wider and often mutually divisions remain largely absent, ethno-linguistic inimical island or regional-scale ‘ethnic’ identities fragmentation remains salient, and the existence of emerged during the colonial era, largely through the an external security guarantee reduces the extent experience of migrant labor and plantation work, and of common threats to political and economic elites intensified in the years surrounding independence.15 that might otherwise facilitate more durable pact However, in general, colonial rule did little to alter formation. While the political economy of Solomon the predominance of localized identities and little to Islands has proven extremely durable over time, the promote any form of national identity.16 policy arena is by no means uncontested—with some dynamic and effective elements of civil society, 15. The resultant political system is one particularly in Honiara. dominated by local—rather than national— concerns. The support base of MPs depends primarily 13. The way the Westminster-style political on what they can deliver to their constituents. system operates in Solomon Islands involves Given both the absence of programmatic political a disconnect between voter choice and the parties and the limited reach and effectiveness of government that results. Solomon Islands has the state, that depends primarily on what MPs can a unitary form of government, with national deliver directly to their constituents, not on what Members of Parliament (MPs) elected from state institutions can deliver to them (over which 50 single-seat constituencies on the basis of MPs have little control individually, nor much scope first-past-the-post ballots.11 Following elections, a for claiming credit personally even if they could now highly institutionalized process governs the influence it). Voters, in turn, have come to judge formation of government, with different political their MPs, “on how well they deliver private goods or factions attempting to attract a sufficient number localized public goods to their constituents.”17 These of MPs to form a ruling coalition. Cabinet positions, systems and imperatives have spurred the growth policy concessions, property, cash, vehicles, of Constituency Development Funds (CDFs), which and mortgages are traded, with business elites— provide MPs with discretionary funds to direct to especially logging interests—actively involved their constituents. These now account for about a in the process.12 Programmatic political parties third of the capital budget and nearly a tenth of total are effectively absent,13 with electors voting for expenditure, have become highly institutionalized, individual MPs and those MPs then bargaining over and dominate the attention and interest of MPs.18 government formation.14 Thus, during elections In this context, it is difficult for those who lack people have no way of knowing who they are access to cash (for instance, in the form of logging voting for as Prime Minister. As well as lacking this royalties, land rents, contributions from businesses, key accountability linkage between voter choice or CDFs themselves) to enroll the necessary support and the government that results, the system as to be elected, disadvantaging women and youth 9 This section draws heavily on Craig and Porter (2014), Allen (2017), Haque (2012), and Bennett (2002). 10 See, in particular, Craig and Porter (2014), drawing on Khan (2010), Slater (2010), and North, Wallis, and Weingast (2013), as well as WDR2017. 11 The lower tier of government consists of nine provincial authorities (formerly colonial administrative units) and the Honiara City Council (HCC). Each has an elected assembly, but these authorities are established under legislation, and the central government has retained tight control over their executive and legislative functions. 12 Bennett (2000, 2002), Allen (2011), Craig and Porter (2014), and Allen (2017). 13 Programmatic political parties are parties with credible stances on broad public policies, whose organizational arrangements allow them to ensure that candidate preferences coincide with party preferences (Keefer 2011). 14 Only once has a single party government—rather than a coalition—emerged following an election. 15 Migrant labor primarily involved men from Malaita and Guadalcanal, with a number of plantations in ‘the West’ (Western and Choiseul provinces), producing the three dominant island or regional ‘ethnic’ identities. 16 Except for the sphere of law and order, the colonial state had very limited reach—and even in this basic respect, it relied heavily on local governance systems to maintain public order. In the early independence period, the state expanded education provision through provincial government-run schools, but it retreated from the sphere of law and order, leaving little in the way of public authority in the lives of most Solomon Islanders. 17 Wood (2014). 18 For a considered view of the system from the perspective of an MP, see Hou (2016). 7| relative to senior males. As a result, MPs are nearly bauxite mining on Rennell Island, with prospecting always senior males—and they are also nearly always licenses predominantly held by Asian companies. indigenous Solomon Islanders, rather than from Loggers have long had a strong interest in a state with ethnic groups that are the main holders of economic minimal regulatory power, a situation that parallels power (see below).19 Though often residing in some of the mining interests that have operated to Honiara themselves, 94 percent of MPs depend on date. Real estate and trade interests in Honiara have rural ties for electoral support (this includes ethno- also had little interest in effective state institutions linguistic ties to other urban dwellers with kinship beyond sufficient stability to avoid major civil unrest ties to their constituencies and who return there to (which Regional Assistance Mission to the Solomon vote at election time, at the expense of MPs). The Islands (RAMSI) has largely provided since 2003), greater ability of voters to secure the interest of MPs benefiting from weaknesses in tax administration through smaller rural constituencies and the reliance and sourcing their security privately. Rather than of nearly all MPs on localized ethno-linguistic ties institutionalizing pacts that support the core for support helps reinforce the salience of local machinery of government, the primary interactions ethno-linguistic identities. between economic and political elites have institutionalized highly transactional relationships 16. All of the above factors contribute to a that often corrode state effectiveness and the rule situation where political elites tend to lack a strong of law, with economic elites providing financial interest in investing in effective state institutions. support to current or prospective MPs in return for The current political system reflects the absence and specific privileges, contracts, or concessions. Most precludes the emergence of programmatic political MPs rely—at least to some extent—on the financial parties. Political parties exist more as opportunistic support provided by business elites to maintain their coalitions of MPs, held together by transactional political support among constituents and fellow bargaining and subject to frequent defections. In MPs. Individual MPs that move against business other country contexts, programmatic political interests risk losing access to these financial parties have served to structure the incentives of resources, opening opportunities for political rivals individual MPs around broader ideological or policy to contest their constituency or their position within goals. Without stable pacts that extend political the ruling coalition. Business elites have become time horizons and facilitate collective action at the adroit at exploiting this collective action problem national level, political elites in Solomon Islands to oppose policies or administrative decisions that appear not to regard performance by the formal run counter to their interests. Governments that machinery of government as an appealing way attempted to assert control over loggers in the to gain or retain public office. This contributes to 1990s, for instance, were brought down by logging the under-investment of resources and political money-induced defections.20 attention in effective state machinery, which further reduces the appeal to MPs of basing electoral 18. While these fundamental political claims on national policy and the functioning economy dynamics of Solomon Islands have of state institutions rather than on parallel systems proven extremely durable over time, they are by no like CDFs. means uncontested. Civil society may be quite thin, but it has some dynamic and effective elements. 17. In parallel, the main holders of economic Forum Solomon Islands International, an advocacy power in Solomon Islands have not had a strong group that fosters debate on social, political, and interest in supporting broader forms of public economic issues, has online forums with relatively authority either. Although MPs typically have large numbers of followers that are also beginning to business interests in one form or another, they engage the interest of MPs. Transparency Solomon do not tend to be the main holders of economic Islands has successfully challenged legislation in power in Solomon Islands. Instead, there is a the courts. And the Solomon Islands Chamber of distinct cleavage between political and economic Commerce and Industry regularly calls for greater power holders, across which no stable pact has transparency, formal dialogue, and accountability been formed in favor of investing in effective state in policy making. In addition, the media frequently institutions. Domestically, economic power holders reports on political and official corruption, disputes are mainly ethnic Chinese—some well-established in over the use of CDFs, and other contentious issues. Honiara for generations (tending to dominate real While women and youth have very limited voice estate, trade, and other sectors of the urban service in national politics, part of the attraction of urban economy), and newer arrivals who are challenging relative to rural areas for them is the increased the business interests of the earlier arrivals. But scope to voice their concerns and some degree of the main economic power holders are foreign: in freedom from the constraints of rural life. In public logging, Malaysian and Indonesian companies; in service jobs, in particular, as well as in a degree mining, until recently an Australian corporation in of entrepreneurial advancement and roles in civil the case of the Gold Ridge mine, and Malaysian and society and media, there are opportunities for Indonesian loggers-turned-miners in the case of empowerment for women and youth. Without taking 19 All but three MPs since independence have been male, and only on very rare occasions has an MP of an ethnicity other than Solomon Islander been elected. (Women have had greater levels of representation in provincial governments, but the provincial government system is weak relative to the central government.) 20 Bennett (2000, 2002), Allen (2011), and Allen and Porter (2016). |8 away from the social innovation seen in some rural in Honiara and at the foreign-owned Gold Ridge areas, Honiara offers a critically important space for mine and oil palm plantation in the north, and the enhancing contestation over public policy. poverty and hardship faced by people from the remote Weather Coast in the south. Urbanisation 19. The lack of a political settlement between was rapid, with the majority of migrants coming the main political and economic power holders from Malaita and dominating the workforce of in favor of investing in effective state authority Honiara, Gold Ridge, and the oil palm planation. has combined with the economic geography of As informal settlements on public land within the Solomon Islands to limit the reach of the state. The city boundaries of Honiara became overcrowded extent of state reach varies considerably by function, and families joined workers at Gold Ridge and the sector, and place. Beyond urban areas, there is scant oil palm plantation, settlements spilled onto peri- presence of state authority in support of law and order urban land in Guadalcanal Province. Some of this or justice. Instead, non-state forms of authority— had been alienated before independence, but some particularly customary and church systems—are was customary land, owned by Guale (people from predominant. In contrast, public health system Guadalcanal) under a matrilineal system that could coverage is reasonably good, with the majority of accommodate access to land but not permanent people about a half-hour walk from some form of transfer. Migrants— mainly from Malaita where land facility (though it may not be adequately staffed or is patrilineal and transfer was not unknown22 — resourced). Some three-quarters of rural children typically negotiated access with Guale landowning can walk to primary school in half an hour (though a groups through systems of reciprocal gift exchange third of primary schools are church rather than state and social obligation or through intermarriage. These schools), but half of secondary students have to live understandings were vulnerable to destabilization away from home for school. Water, sanitation, waste as new arrivals joined—and a new generation disposal, and energy utilities are largely absent succeeded—those who had negotiated the land beyond urban areas. To facilitate access to the state access initially and as perceptions developed that and its services, connective infrastructure is critical. over time migrants had begun to disrespect local An estimated 77 percent of the rural population is kastom (chiefly) laws and practices and apply within reach of a road, which connects people to the their own. coast and the maritime transport that is the primary mode of transport for people and goods. While road 21. The proximate factors precipitating the and maritime connections may make local urban tension included the end of the logging boom, centers reasonably accessible, many island groups the crisis in neighboring Bougainville, and the have only monthly shipping services to Honiara, role played by ‘conflict engineers’. The logging limiting their access to services (and markets). In boom ended with the Asian Financial Crisis in the regulatory sphere, as subsequent sections will 1997, provoking a fiscal crisis and curtailing the explore, the reach of the state is quite limited in rents that had been funding exchanges between key areas like land and natural resources. Patterns loggers, MPs, and their supporters. In the context of of state reach can of course change over time, for the fiscal crisis, the government cut public service instance with better transport connections to urban jobs (cuts that continued as a condition of external centers, greater urbanization, more decentralized adjustment assistance in 1998), sought to increase service provision, or the growth of economic sectors the determined price of logs, cut grants to provincial with different political economy dynamics from the authorities, and suspended the area councils that current ones. served as local-level public authorities—marking a further retreat of the state in the area of law and Drivers of Fragility, Conflict, and Violence21 order. In the context of the Bougainville crisis, a paramilitary wing of the police had been formed and 20. In the late 1990s, Solomon Islands armed by the mid-1990s to respond to the conflict entered a period of conflict known as the ‘ethnic spilling over the border, while at the same time tension’, the key drivers of which—contested state thousands of displaced Bougainvilleans took refuge legitimacy, uneven development, poorly managed primarily on Guadalcanal, sharing stories of evicting urbanization, and contested control over land and migrant workers on their land and fighting for a natural resources—remain present today. In the fairer share of mining revenues. Though contested, years preceding the tension, debates about state it is more likely than not that political elites actively legitimacy, the division of power, federalism, and contributed to the mobilization and arming of provincial succession were commonplace among Guale and Malaitan militant groups in pursuit political elites. Economic growth, though rapid in of their own political and economic interests.23 the first half of the 1990s, was highly uneven, driven In 1998, the Guadalcanal Premier put forward a set by logging and to a lesser extent by mining and the of demands on behalf of the Provincial Assembly for expansion of Honiara’s service economy. Inequities the removal of ‘illegal’ settlers, as well as Honiara were particularly pronounced on Guadalcanal, with and other major developments, from Guadalcanal a stark contrast between the wealth generated and the adoption of a federal system. When the 21 This section draws heavily on Allen (2017), as well as Evans (2017), Dinnen, Porter, and Sage (2010), Coppel (2012), Bennett (2002), and Craig and Porter (2014). 22 Allen (2017). 9| government did not respond, young Guale men accordance with electoral rules, and sporadic large- mainly from the Weather Coast mobilized and scale protests that have taken place since 2003 not targeted Malaitan settlers, drawing on a narrative triggering the return of conflict.27 of the exploitation of their land and resources by outsiders that had been forged alongside the island- 23. Trends in government effectiveness since scale Guale identity during the colonial-era migrant the end of the conflict present a mixed picture. In labor experience. Young Malaitan men mobilized the wake of the conflict, the international community in response, drawing on a counter-narrative of the played a significant role in governance in Solomon enduring neglect of Malaita, and the unrecognized Islands, with development partners—particularly contributions of Malaitan labor to building the Australia and New Zealand—jointly involved in the Solomon Islands, also forged during the colonial era. management and operation of key state functions. They were mainly from the more densely populated This was most evident in security and policing, but and impoverished areas of northern Malaita (and extended in various degrees to finance, revenue, increasingly also from Honiara), obtaining weapons customs, justice, health, and education. Over time, from the Malaitan-dominated paramilitary wing of most of these engagements have become more the police. Approximately 35,000 migrants—mainly typical technical assistance engagements, with a Malaitans—were displaced from their homes on reduced presence of expatriates in in-line roles. Guadalcanal in a low-intensity conflict that lasted However, one unintended consequence of the five years, cost an estimated 200 lives, and involved strong development partner presence in the state, widespread sexual violence against women and girls. seems to have been the dulling of the already limited Particularly after the signing of a peace agreement incentives of political elites to take responsibility in 2000, access to compensation payments became for the effective functioning of the state.28 Instead, a key motivation of militants and political elites, political attention and public resources have been and the conflict was increasingly characterized by increasingly channeled into parallel systems like criminality. While the Gold Ridge mine, oil palm CDFs that bypass the state proper (including plantation, and many other aspects of the market its increasingly strong financial management economy (including copra exports) ceased during provisions, supported by development partners). At the tension, logging continued in most provinces the same time, development partners—increasingly except Guadalcanal. State services were weakened frustrated by the lack of efficacy of state institutions to the point of collapse, especially in areas where under the control of the executive—have sought to the conflict occurred. Solomon Islanders endured create special purpose entities to insulate particular the conflict as well as they did, largely through state functions, finances, and staff from politics retreat into subsistence agriculture and fisheries. (for instance, the National Transport Fund).29 Parallel systems may be the most effective way 22. The conflict ended in 2003 as a result of to provide key functions and services, but there is an Australian-led regional military intervention, often a trade-off with the risk they contribute to the restoring law and order, stabilizing government underlying problem of a weak core state or raise finances, and rebuilding the central state. RAMSI expectations of service standards the state lacks was primarily a law and order intervention the capacity and resources to sustain. The resultant accompanied by machinery-of-government support state in Solomon Islands exhibits a high degree of to underpin stability and the delivery of public fragmentation and an array of parallel systems, with services.24 Rather than RAMSI having an explicit many well-functioning pockets within or alongside mandate to tackle the underlying drivers of the it but a pronounced lack of overall coherence— conflict, it was implicitly expected that security unsurprisingly, given the immense management and service delivery would promote greater social challenges of such a situation and the overload of inclusion and lead to a liberal political settlement.25 activity relative to the capacity of the core state RAMSI brought the conflict to an end, successfully system. Overall, Solomon Islands has exhibited removed most weapons from the community, mixed trends on governance indicators, with few supported prosecution of ex-militants, police, and clear signs of improvement (Figures 7 and 8). eventually politicians and senior public servants implicated in the conflict and associated criminality and corruption, and rebuilt national institutions.26 Unusually for a post-conflict setting, Solomon Islands has been largely peaceful since the end of the conflict, with incidents involving firearms infrequent, transitions of political power occurring in 23 Allen (2017). 24 See Coppel (2012), who describes the primary task under RAMSI’s civil order mandate as reestablishing security in Honiara and the main tasks under the economic mandate as stabilizing government finances and promoting longer-term economic recovery and revived business confidence through the pursuit of economic reforms and the rebuilding of the essential machinery of government to support stability and service delivery. 25 A Truth and Reconciliation Commission took place from 2010 to 2012, but its final report was never released (leaving a number of civil society actors concerned about the non-resolution of these issues) and its efficacy in the wake of the intense prosecutorial activity that preceded it has been questioned (Allen 2017). 26 Dinnen, Porter, and Sage (2010). 27 Coppel (2012). 28 Craig and Porter (2014); Haque (2012). 29 Dinnen, Porter, and Sage (2010); Haque (2012, 2013); Craig and Porter (2014). | 10 Figure 7: World Governance Indicators Figure 8: Country Policy and Institutional – changes and comparators Assessment public sector management and institutions scores - changes and comparators 1.5 1.5 4 1 1 3.5 0.5 0.5 3 0 0 2.5 -0.5 -0.5 2 -1 -1 1.5 -1.5 -1.5 1 -2 -2 0.5 -2.5 -2.5 0 Control of Corruption Government Effectiveness Political Stability/ Absence of Violence Regulatory Quality Rule of Law Voice and Accountability 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Solomon Islands Solomon Islands Pacific Islands Small states Solomon Islands 1998 2015 LIC 2015 FCS 2015 Source World Bank. Note The scale is 0 (worst) to 6 (best). Source World Bank. Note The scale is -2.5 (worst) to +2.5 (best). LIC = low income countries; FCS = fragile and conflict-affected states. 11 | 2.2 Post-conflict Developments it has since grown by an average of 5 percent per year (Figure 9). The largest single contributor to 24. Since the tension, Solomon Islands GDP growth since the tension has been logging, has made substantial progress with economic accounting for 26.5 percent of the overall increase in development and poverty reduction, but that real GDP between 2002 and 2014 (Figure 10). Over progress has been quite uneven across space and this period, log production increased by nearly 10 between genders. The conflict has cost Solomon percent per year on average, with rates of extraction Islanders dearly in economic terms, with people significantly exceeding the estimated sustainable poorer on average today than they were two yield. Log exports are almost wholly dependent on decades ago before the conflict. There is a pressing the market in China (the channel through which the need to develop additional sources of growth and to GFC caused the economy to contract in 2009). The preserve fiscal stability. There is also a pressing need services sector as a whole has also made a significant to strengthen resilience and mitigate some of the contribution to post-conflict growth (33.8 percent stark socioeconomic inequities between urban and of the overall increase in GDP), driven by the post- rural areas, across provinces, and between genders. conflict expansion of public sector spending as well as international community spending outside Post-conflict Economic Developments government systems.30 The agriculture sector (excluding logging) has also made a significant 25. In the period since the tension the economy contribution to growth (24.5 percent of the overall has grown quite strongly, driven by logging, increase in GDP), including from the post-conflict agriculture, and the post-conflict expansion of resumption of copra production and reopening of public sector spending. Indicating one aspect the oil palm plantation. The temporary resumption of the cost of the conflict, by 2002, real GDP was of mining at Gold Ridge contributed to growth in 24.4 percent below what it had been in 1998. Over 2011–12, before detracting from it in 2013–14. the next six years, GDP grew by an average of 7.3 percent per year and, after a modest contraction in 2009 caused by the Global Financial Crisis (GFC), Figure 9: Real GDP, 1990–2016 (constant 1985 prices) Figure 10: Sectoral composition of real GDP growth (%) Asian Financial SI$m Crisis Tension GFC 600 500 12 12 10 10 400 8 8 6 6 300 4 4 2 2 200 0 0 -2 -2 100 -4 -4 0 -6 -6 1999 1993 1995 1991 2013 1997 2011 1989 1985 2009 1987 2003 2005 2001 2007 2004 2006 2009 2008 2003 2005 2007 2012 2011 2010 2014 2013 Logging Non-logging Agriculture Fisheries Logging Non-logging Agriculture Fisheries Mining Non-mining Industry Mining Non-mining Industry Services Services Source CBSI. Real GDP Growth (%) Source CBSI and World Bank staff estimates. 30 Limitations on the comparability of the preferred source of sectoral growth data and the only source of sub-sectoral growth data means it is not possible to present disaggregated data for the services sector in Figure 10. | 12 26. Although real GDP surpassed its pre- age 25). As a result, the average real GDP growth conflict peak in 2007, real GDP per capita has still of 5.5 percent annually since the tension equates to not surpassed its pre-conflict peak. That is, on about 2.6 percent per year, in per capita terms. Most average, Solomon Islanders are still poorer today concerning is the fact that, between 2012 and 2016, than they were two decades ago (Figure 11). This GDP growth has averaged only 2.9 percent, with striking circumstance is due to two factors: first, estimated population growth of about 2 percent the low base of GDP per capita at the end of the per year. At this rate, it might be another decade tension (some one-third below its pre-conflict before real GDP per capita surpasses its pre-conflict peak); and second, relatively rapid population peak. It is hard to imagine how that kind of outlook growth. According to the 2009 census, between could meet the expectations of Solomon Islanders in 1999 and 2009 the population grew at an average of respect of rising living standards. 2.3 percent annually,31 and the age structure of the population was very young (with 59 percent below Figure 11: Real GDP per capita SI$ SI$ 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 Logging boom Tensions GFC 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 2000 2001 2004 2006 2009 2008 2003 2005 2002 2007 2010 2011 2014 2013 2015 1990 2012 1991 1994 1996 1999 1998 1993 1995 1992 1997 Source World Development Indicators (WDI). 27. In the period since the tension, reserves were rebuilt. Supporting these processes, macroeconomic stability has been restored. in the first decade after the tension, Australian and During the tension, declining revenue and reduced New Zealand officials played key advisory and in- expenditure control yielded a sharp deterioration line roles in the Ministry of Finance and Treasury in the fiscal position, resulting in a deficit of 8.3 (MoFT), especially in the divisions responsible percent of GDP by 2001. By the end of the tension, for finance, revenue, and customs. A very limited the government was in default on all its official number of these advisory positions still remain. On debts, and foreign reserves were virtually exhausted. the external side, the U.S. dollar-pegged exchange Through the Honiara Club Agreement with its major rate was allowed to depreciate significantly and creditors, Solomon Islands’ public debt was written foreign reserves were rebuilt. After the economic down and a debt moratorium maintained until its contraction in 2009, the IMF provided a Standby risk of debt distress fell from high to moderate. Credit Facility in 2010, followed by an Extended In the post-conflict period, there has been an Credit Facility which expired at the end of 2015. extraordinary recovery in domestic revenues as Between 2010 and 2014, key development partners well as extraordinarily high levels of development also provided budget support against a joint set of assistance (Figure 12). These resources were used to policy reforms that were heavily focused on public fund an expansion of public expenditure on service financial management.32 delivery, as well as on CDFs. At least at an aggregate level, budget discipline was maintained and cash 31 While this is the official figure published in the 2009 census report, the report notes that there was likely an undercount during the census, resulting in annual population growth for the period being closer to 3 percent. 32 For further information on post-conflict macroeconomic management, see Haque (2013). 13 | 28. At the current juncture Solomon Islands margin between average levels of GDP growth and faces some pressing economic challenges. The population growth in the last few years, developing primary one is to develop additional sources of additional sources of growth is a pressing challenge growth, within the constraints imposed on private anyway. However, it is made more so by the sector development by economic geography. This unsustainability of the growth currently generated is necessary for macroeconomic stability and to by logging, as well as the increased economic impact provide job opportunities to the young and fast of natural disasters resulting from climate change. growing population. As Figure 13 shows, the size As the SCD will argue, over the medium term, mining of the working-age population in Solomon Islands appears to be the only industry in Solomon Islands is projected to expand rapidly over the coming with any prospect of filling the macroeconomic decades, providing an opportunity (for growth space currently occupied by logging, and it generated by the expanding labor force) and a would entail significant macro-fiscal, conflict, and risk (if job opportunities are not available for the environmental risks. rising number of job seekers). Given the small Figure 12: Total revenues and expenditures (constant prices), 2000–2015 SI$m SI$m Domestic Revenues 3,000 3,500 Grants 3,000 2,500 Govt. Spending 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source IMF, World Bank staff calculations Figure 13: Projected expansion of working-age population, 2010-2040 Fiji Samoa FSM Tonga Kiribati PNG Solomon Is. Vanuatu 0% 20% 40% 60% 80% Source United Nations (UN) World Population Statistics 2015. 29. A second and related challenge is to cash balances are expected to be exhausted in 2017. address the difficulties of the fiscal position, both Managing the fiscal situation is thus an immediate immediately and through the potential transition challenge. It will be compounded by the decline of from logging to mining. In the immediate term, logging, which currently provides 15–-20 percent of the government faces the difficulty of financing its domestic revenues directly, in the form of duties on deficit. Aid has declined sharply from its peak of 31.1 log exports. Since the timing and rate of the decline percent of GDP in 2010 to an estimated 12.2 percent of of logging is unknown, it is also unknown whether GDP in 2016 (where it is expected to remain over the investments in large-scale mining—if forthcoming near term). In the earlier stages of the decline, rising soon—will yield growth, exports, and royalties for domestic revenues enabled real expenditure to be the state in time to offset that decline or whether roughly maintained, without fiscal deficits. However, there will be a significant gap. These challenges domestic revenues have since stabilized in real terms and uncertainties are made more concerning and, from 2015 onward, the government has run by the winding down of development partner down its cash balances to finance its deficits. Those support for the revenue administration, and—on the | 14 expenditure side—by the government’s decision to 31. Based on the 2012/13 HIES, 12.7 percent cease a number of development partner-provided of the population were below the national basic key financial control-type roles. In this context, needs poverty line (13.6 percent in rural areas medium-term risks to the continued financing of and 9.1 percent in urban areas). In rural areas, 5.3 public functions and services that are provided by percent of the population were below the national the state would have to be rated as significant, and food poverty line, with food poverty virtually non- macroeconomic instability could not be ruled out. existent in urban areas. As well as being different in magnitude, poverty is different in nature in rural and Post-conflict Poverty Developments urban areas. In rural areas, 64 percent of the value of rural households’ consumption baskets goes 30. In the years since the tension, aggregate toward food, and households produce 60 percent poverty rates appear to have declined—perhaps of the food they consume on average (although considerably. Significant differences in methodology processed foods are now widely available). Some between the 2005/06 HIES and 2013/14 HIES mean 63 percent of working-age adults in rural areas are that the poverty rates are not comparable. Based primarily engaged in subsistence activity (including on work constructing a consistent consumption producing goods for own consumption and other aggregate and basic needs poverty line for the unpaid domestic work), compared to 31 percent in two surveys, aggregate poverty appears to have urban areas—with significantly higher rates among declined by 8 percentage points between 2005/06 women than men (Figure 14). Opportunities for paid and 2012/13, from 22 percent to 14 percent. This work are greater in urban areas, with 41 percent of implies that some 45,000 people were lifted out of working-age adults employed in urban areas versus poverty over that period. While the differences in 13 percent in rural areas—with significantly lower methodology mean this comparison is not robust, rates among women than men. In urban areas, 69 a considerable decline in poverty over this period percent of household income comes from wages is consistent with the rising per capita GDP and the and salaries, on average, compared to 22 percent contribution to growth that has come from relatively in rural areas (Figure 15). On average, 42 percent inclusive sources: non-logging agriculture and, of the value of urban households’ consumption perhaps also, the urban service economy. baskets goes toward food.33 Only 10–15 percent of the food consumed by urban households is locally produced, with diets relying heavily on processed foods (mainly instant noodles, flour, rice, canned fish, and biscuits). 33 The cost of living is significant higher in Honiara than in the provinces, reflected in higher poverty lines. 15 | 32. In addition to those living in poverty, a high disaster-related agricultural and fisheries losses (all proportion of Solomon Islanders are vulnerable of which climate change is likely to exacerbate), as to falling into poverty. For example, the number well as cash crop and fuel price volatility and shocks. of people unable to meet their basic needs would Urban households are particularly vulnerable to food increase by 25 percent if the poverty line was just 10 and fuel price spikes and to the loss of income due to percent higher. The well-being of Solomon Islanders unemployment. Rural and urban households are both is subject to considerable volatility and is highly vulnerable to personal and property losses from the vulnerable to shocks. This is due to both the nature of natural disasters Solomon Islands is susceptible to, economic activities and the absence of mechanisms including cyclones, floods, earthquakes, tsunamis, to mitigate risks—aside from traditional social safety storm surges, and king tides (which are likely to nets and retreat into subsistence agriculture and increase in intensity with climate change), as well as fisheries (though depending on the nature of the to losses of livelihood opportunities resulting from shock, this may not be possible). Rural households health shocks. are vulnerable to weather, pest, disease, and natural Figure 14: Primary economic activity in rural and urban areas by gender 100% Percentage of working-age population (aged 18-65) 6% 10% Subsistence 90% 13% 17% 7% For sale/ own business 80% 9% 19% Employed 30% 70% Student 60% 20% Inactive 51% 50% 10% 76% 40% 50% 30% 45% 13% 20% 10% 17% 0% Female Male Female Male Rural areas Urban areas Source World Bank staff estimates based on the 2012/13 HIES. Figure 15: Average household income composition by rural and urban areas34 80% 69% 70% 60% 50% 40% 30% 29% 69% 22% 20% 15% 12% Rural 9% 10% 10% 8% 5% 5% 5% 4% 4% Urban 1% 1% 2% 0% Wage and salaries Non-agriculture business Agriculture activities Fisheries activities Livestock activities Home production activities Property, transfers and other casual activities Remittances Source United Nations (UN) World Population Statistics 2015. 34 These particular estimates reflect the (democratic) average of the composition of income across households, excluding imputed rent and the income-equivalent of goods produced for home consumption. | 16 33. There is little clear evidence of inequality essential services (other than off-grid electricity). dynamics in the years since the tension. The limited Headline indicators of health and education status, comparability of consumption aggregates between shown in Table 2, display considerable improvement. the 2005/06 and 2012/13 HIES means that robust Disaggregated data are not currently available, conclusions cannot be drawn on trends in inequality. however, to assess the extent of improvement for The Gini coefficient on real consumption per adult the bottom two quintiles or even the rural-urban equivalent calculated from the 2012/13 HIES is a trajectories. Indicators of access to essential services very moderate 0.33.35 The top quintile consumes just based on the HIES can be disaggregated by area, with over five times the level of the lowest quintile, and the results in Table 3, and show little improvement the bottom two quintiles account for 20 percent of in access to an improved water source or access total consumption. Post-conflict growth of relatively to improved sanitation, either in Honiara or other inclusive non-logging agriculture could be expected provinces. There has, however, been a significant to have reduced inequality, as should the expansion increase in access to off-grid electricity for lighting, of public service delivery, but post-conflict growth particularly in the provinces. These comparisons tend from logging could be expected to have increased to reinforce the significance of economic geography it. Other than these broad expectations, there is constraints for the infrastructure provision, but little to go on.36 suggest that a different dynamic is at play Honiara, which the SCD explores. Despite improvements 34. Indicators of health and education show in some areas of well-being, Solomon Islands did significant improvements in the post-conflict not achieve any of the Millennium Development period, but this is not the case for access to Goals (MDGs). Table 2: Changes in key health and education indicators in the post-conflict period Infant mortality (deaths per 1,000 live births) 27.2 (2002) 23.6 (2015) Incidence of tuberculosis (per 100,000 people) 166 (2002) 86 (2014) Life expectancy at birth (years) 64.1 (2002) 67.9 (2014) Net primary enrolment rate 75.5 (2005) 88.4 (2014) Net junior secondary enrolment rate 34.3 (2006) 42.2 (2012) Source WDI and MEHRD 2015a. Table 3: Changes in essential services access between the 2005/06 and 2012/13 HIES37 Honiara Other Provinces Solomon Islands 2005/06 2012/13 2005/06 2012/13 2005/06 2012/13 Access to improved water source 93% 93% 77% 75% 79% 76% Access to improved sanitation 70% 72% 18% 21% 25% 27% Access to electricity for lighting 63% 72% 8% 42% 14% 45% - on the grid 63% 58% 7% 4% 13% 9% Source World Bank staff analysis of 2005/06 and 2012/13 HIES data. 35. While the multifaceted nature of gender By 2014, the Gender Parity Index (GPI) for the net inequality makes it difficult to draw conclusions enrolment ratios for primary, junior secondary, about overall trends, its pronounced extent is and senior secondary education were 0.97, 1.1, and clear. A set of static indicators of gender inequity 1.0 respectively (indicating lower participation of are shown in Table 4, including the very high girls in primary education, offset by lower grade incidence of violence against women. With respect repetition and dropouts to yield higher participation to trends, there has been some improvement in of girls in junior secondary education, with lower the post-conflict period in gender equity in school progression for girls then seeing them fall back enrolment, albeit from a relatively high base.38 to parity). Other important trends include recent 35 The original analysis of the 2005/06 HIES reports a Gini coefficient of 0.39, with the bottom two quintiles accounting for 19 percent of aggregate consumption. At face value, this suggests a decline in inequality between 2005/06 and 2012/13, but as indicated the two consumption distributions are not comparable. 36 For similar reasons to the inequality statistics, it is not possible to make robust comparisons between the two HIES of the extent of interprovincial inequality. 37 Note that questions and response options relating to access to water, sanitation, and electricity were significantly altered between the 2005/06 and 2012/13 surveys. The access rates presented represent best World Bank staff estimates, but they are not directly comparable, and small changes should be interpreted with caution. 38 The available baselines are 2005 for net primary enrolment (74 percent for girls and 77 percent for boys), and 2006 for net junior secondary enrolment (31 percent for girls and 38 percent for boys). 17 | legislation introducing ‘domestic violence’ as a and rent or royalty payments—particularly in areas criminal offence, the public provision of gender- of matrilineal landholding (Monson 2010, 2015). based violence support services (in urban areas), the Paid employment is rising in importance, with growth of women’s advocacy groups (particularly opportunities for women particularly scarce. As in Honiara), and increasing entrepreneurship explored in subsequent sections, these processes among women. Other dynamics associated with tend to raise the status and power of men relative processes of development risk systematically to women and so continually change the ground on intensifying gender inequity. When customary land which efforts to empower women and increase their is commercialized, women are typically marginalized voice in social, economic, and political decision- in processes of legal registration, decision making, making are operating. Table 4: Indicators of gender inequity Male Female Gender composition of MPs 98% 2% Gender composition of public servants at senior level 81% 19% Gender composition of public servants 62% 38% Gender composition of business directors and shareholders 70% 30% Percentage aged 18-65 employed 26% 12% Percentage aged 18-65 with primary economic activity at 43% 70% home/in subsistence Percentage aged 18-65 who attended primary school or 95% 86% above Percentage aged 18-65 who attended secondary school or 49% 37% above Functional literacy rate [among adults?] 21% 14% Percentage of ever-partnered women who have experienced n/a 64% intimate partner violence Source World Bank staff analysis of 2012/13 HIES, ADB 2015, SPC 2009. 2.3 Contemporary Sources of Risk source of food, an opportunity to earn a livelihood, and a foundation for social identity and belonging and Resilience39 (see Box 2). The effects of population growth and climate change are likely to challenge some aspects 36. Risk and resilience in Solomon Islands of this resilience over time and pose greater risks are best understood in terms of the capacity of of disputes over land and sea access, but the most institutions to manage social and economic change. immediate risk to this source of resilience comes These institutions include both state and non-state from the commercialization of land (see below). institutions, with the latter playing some particularly As well as being a key source of social identity, important roles in Solomon Islands, given the limited kinship systems act as networks that can provide reach of the state in some areas of social, economic, support for socioeconomic advancement and for and political life. Customary and other informal enduring periods of hardship. They play important forms of social organization act as a key source roles, for instance, supporting migrants from rural of resilience, with a demonstrated capacity to areas when they arrive in urban areas to seek work adaptably deliver social order even in the absence or access public services. As a source of resilience of a strong and capable state. Risks arise from the during hardship, kinship systems have weaknesses, possibility that the pace of social and economic including where they become overstretched. change will outstrip the capacity of both formal They also tend to reinforce existing power and informal institutions to adapt to new pressures. relations, disadvantaging women in particular, as when pressure from kinship groups contributes Key Sources of Resilience to keeping women in abusive relationships. In addition, they can corrode incentives for effort 37. Customary institutions surrounding land where those accumulating wealth face resentment and kinship are an important source of resilience. or even ostracism if they do not distribute it and For most Solomon Islanders, access to customary where they form the basis of nepotism in the public land provides a place to live, access to water, a and private sectors. 39 This section draws heavily on Allen (2017). | 18 BOX 2 CUSTOMARY LAND IN SOLOMON ISLANDS Some 87 percent of the land area of Solomon Islands is designated as customary land. This means that ownership of it and access to it are governed by customary systems, usually involving control by kinship groups (matrilineal in some areas, patrilineal in others). In rural areas, where most land is in customary hands, indigenous Solomon Islanders have access to land to live on and for subsistence purposes through kinship networks. Social identity is generally very closely tied to kinship and thus also to land. Customary land is not meant to be available for commercial use. Formally, that requires prior registration of the land, involving demarcation of boundaries and naming up to five people as ‘duly appointed representatives’ of the landowners on its title (a trusteeship system). Monson (2010) has found that in practice these representatives have nearly always been men—including in areas of matrilineal landholding. The rest of the land area of Solomon Islands is alienated land—including Honiara, within the city boundaries, the provincial capitals, and virtually all of the flat agricultural land in the country. Almost all alienated land is publicly owned, with the Commissioner of Lands holding the perpetual estate interest in public land on behalf of the government. With the passage of the Land and Titles Amendment Act (2014), the government established a Land Board, shifting decision making from the Commissioner of Lands to the Land Board. Most public land has been allocated on 75-year leases—called ‘fixed term estates’ (FTEs)—to firms and households. In contrast to rural areas, where land provides for housing, subsistence, and access to essential services like water, in informal settlements in and around Honiara residents typically lack security of tenure where they live, there is little space for subsistence production, and access to essential services can be denied because of lack of formal title. 38. Customary and church systems of play in future will depend, in part, on the authority, authority also provide an important source of capacity, and resources they can command to resilience through their critical role in maintaining manage contestation and the nature, extent, and social order. As will be explored in subsequent pace of social and economic changes that they have sections, they often provide mechanisms to deal to adapt to. with disputes, social order problems, and contests over resources, particularly in rural areas and in Key Sources of Risk informal urban settlements. Though generally accessible, accepted, and effective in their own way, 39. The commercialization of land is a major non-state forms of authority tend to be unable source of risk, especially in the context of extractive to mediate and contain local problems that industry development. Commercialization could originate at a higher scale—as with logging- be a source of gain to most Solomon Islanders, if related disputes—and can become overwhelmed the existing widely dispersed ownership of and by the extent of social order problems—as with access rights to land were leveraged for the benefit substance abuse, in some areas. In some cases, of all of those with existing ownership and access non-state systems have lost their authority because claims. However, to date, processes surrounding power holders in them have become parties to the commercialization of land have tended to the transactions they need to adjudicate. Field marginalize the many and benefit the few—typically research in both rural and urban settings points to a few powerful men.41 The rise of ostensibly widespread perceptions of systemic unfairness and traditional, exclusive ‘customary landowners’ as injustice, which combine with lack of confidence powerful actors with strong relationships or overlap in state or non-state forms of public authority with political elites, is a salient political economy to address these, to fuel grievance and erode development in the post-conflict years. It is one social cohesion.40 When overwhelmed, these that threatens to further marginalize the interests of institutions can not only cease to serve as sources women and other men in the development process of resilience but some may become sources of risk, and to undermine the role of customary land as a if their authority is turned to mobilizing protest, safety net against material dispossession. aggression, and violence. The precise role they 40 Allen et al. (2013); Evans (2017). 19 | 40. As the SCD explores, the transition from 42. Interrelated with the challenge of logging to mining offers an important opportunity effectively managing urbanization are the risks of for Solomon Islands, because the political economy demographic and sociocultural change in Solomon of large-scale mining could be more amenable Islands. As population growth rates continue to to the development of effective state institutions slow in Solomon Islands, dependency ratios will than logging has been. However, achieving that decline, potentially providing for increased incomes political economy structure in Solomon Islands will and productivity with the ‘demographic dividend’ be challenging, and the risks of large-scale mining in of a larger share of the population at working age. the current political economy context are extremely However, negative consequences are also possible. high. Large-scale mining is likely to exacerbate While the evidence is not conclusive, the presence disputes and conflict within the provinces of youth bulges has been associated with conflict concerned and between those provinces and the and violence internationally, especially in the context central government if (a) the wealth generated of limited employment opportunities and options from mineral resources accrues mainly to foreign for labor mobility. Recent research in Honiara has mining companies, limited numbers of powerful highlighted an association between masculine male ‘landowners’, and a central state that does not identities and collective and interpersonal violence prioritize the use of them to enhance the reach of among urban youth.43 This subculture is fueled by the state or the delivery of public services; and (b) alcohol and marijuana, which are cheap and easily the social and environmental costs of mining accrue available in Honiara. Both formal and informal mainly to the people in the surrounding area and the institutions are currently struggling to deal with the wider province. It is probable that these dynamics violence and disorder associated with substance would reinforce the position of the state as the abuse among young males. focus of ‘unfinished business’ in Solomon Islands, intensifying calls for a federal system or secession 43. The end of June 2017 will mark the formal to reconfigure the locus of power and authority over completion of RAMSI, a transition point that is natural resources.42 a source of risk for Solomon Islands. While the external security guarantee remains in effect, the 41. Like the transition to mining, urbanization formal end of RAMSI may be treated by those offers several important opportunities to Solomon with unresolved grievances from the tension as Islands—if it is well managed. First, the density of signaling a renewed opportunity to use violence productive activity associated with urbanization to pursue their objectives. Beyond the sphere of facilitates productivity improvements as a result of security, the transition from institutional support to increased specialization. Second, urban growth can central agencies through in-line staff under RAMSI increase demand for agricultural and other products to advisory support has already occurred, but the from rural areas, if the requisite infrastructure extent of that support is continuing to decline. In connections are in place. Third, urbanization can part, the continued withdrawal of advisors reflects allow the realization of economies of scale in the donor and government confidence in local capacity provision of essential services to a larger share to undertake key state functions and a wish to bring of the population, bringing down unit costs—the the period of extraordinary post-conflict assistance benefits of which could be used to invest in the to an end. It will increase space for locally driven geographic expansion of service networks. Finally, policy processes that might better reflect domestic urbanization can spur new forms of social identity concerns and priorities. However, the further reduction and provide space for the voices of those previously in advisor presence in MoFT, in particular, will raise more disempowered in social, economic, and governance and macroeconomic management risks political life. However, the risks of poorly managed by removing some of the insulation between vital urbanization in Solomon Islands are also high, fiscal and fiduciary management processes and the particularly given the pronounced youth bulge. underlying political economy. With fiscal difficulties At present, an estimated 7,500 young people enter now becoming very pressing, this may not be an the workforce each year but only one in six school- appropriate point to take that additional risk. leavers finds paid employment. If rapid urban growth occurs with scarce paid employment opportunities, lack of essential services in informal settlements, marked inequities between formal and informal areas, and further expansion onto customary land without a resolution of the status of this land that satisfies landowning groups, it is likely to fuel disputes and grievances. However, in the context of these relatively new forms of contest among newly associating groups in new urban spaces, necessity could stimulate the emergence of new informal institutions that are able to mediate across established lines of social identity and difference. 41 See Monson (2010, 2015). 42 On the logging to mining transition, see in particular Allen and Porter (2016) and Baines (2015). 43 Evans (2017). | 20 3. ANALYTICAL FRAMEWORK 44. The analytical framework adopted for this policy interventions have not always delivered the SCD examines potential contributors to reducing expected outcomes because of underlying political extreme poverty and promoting shared prosperity economy factors that have undermined the critical in Solomon Islands, while taking account of determinants of policy effectiveness: commitment, economic geography and political economy factors. coordination, or cooperation. The challenge is to In so doing, it tailors the broad analytical approach attend to the political economy context and identify developed by the World Bank Group for SCDs to approaches that go with the grain of the incentive the specific country context of Solomon Islands, as structures of powerful elites—or alter the feasible outlined above. It also draws on key lessons from the set of policies by changing the incentives of elites, World Development Reports (WDRs) of 2009 and altering preferences and beliefs, or increasing 2017, as outlined below. the contestability of the policy arena. Failing this, international resources may need to be mobilized 45. Consistent with WDR2009 ‘Reshaping to subsidize development outcomes that domestic Economic Geography’, the SCD reflects the political elites are unwilling to invest in. acknowledgement that economic development is inevitably spatially unbalanced, both within and 47. The analytical framework is organized across national boundaries. The absence of large and across three broad and interrelated pillars: (a) dense population centers, long distances to global strengthening the foundations of well-being; (b) centers of economic activity, and geographical and achieving inclusive and sustainable growth; and social divisions all have fundamental implications (c) managing uneven development (Figure 16). for the feasible range of development trajectories Economic geography and state fragility are cross- available to Solomon Islands. Solomon Islands’ future cutting themes in the analysis of constraints and development depends on identifying and pursuing opportunities under each pillar. The first pillar strategies that are consistent with its economic focuses on provision of the basics of life, which the geography, including (a) focusing on economic economic geography of Solomon Islands makes development opportunities that are viable despite particularly challenging. The second pillar examines the constraints of economic geography; and (b) potential sources of growth, together with the likely ensuring the public sector can effectively manage extent of their inclusiveness and sustainability. As the impacts of uneven development, including we have seen in the previous section, not only are through redistributing the benefits of concentrated the possible sources of growth in Solomon Islands economic activity. circumscribed by its economic geography, their feasibility, inclusiveness, and sustainability are 46. Consistent with WDR2017 ‘Governance heavily conditioned by political economy factors. and the Law’, the SCD acknowledges political The third pillar focuses on the overarching challenge economy constraints to state effectiveness and of managing uneven development, recognizing political drivers of state fragility (which are closely both that development will be highly uneven in interrelated with economic geography in Solomon Solomon Islands as a consequence of its economic Islands). In the years since the conflict, unparalleled geography and that spreading the benefits from international resources in per capita terms have centers of growth as widely as possible will be been mobilized to rebuild state institutions and critical to poverty reduction, shared prosperity, and strengthen state capacity in Solomon Islands. the avoidance of further conflict. Consistent with the conclusions of WDR2017, 21 | Figure 16: Analytical framework for the Solomon Islands SCD Poverty Reduction & Shared Prosperity Economic Geography Strengthening the Achieving Inclusive Managing Uneven Foundations of and Sustainable Development Well-being Growth State Fragility Peace, Justice Agriculture & Fisheries Patterns of Uneven & Security Development Extractive Industries Health Urban Services Connectivity (Transport Education & Communications) Tourism Essential Services Other Systems for (Water, Sanitation, Labour Mobility Waste & Energy) Managing Uneven Macro-fiscal Development, Disaster Risk Management Volatility & Shocks Management & Challenges Climate Adaptation | 22 4. PILLAR 1: STRENGTHENING THE FOUNDATIONS OF WELL-BEING 48. Under this pillar, the SCD focuses on Solomon Islands, rather than contributing to higher key services that contribute directly to people’s risks of instability because the large numbers of labor well-being: security, health, education, essential force entrants cannot be productively employed. services, and protection from natural disasters. As Figure 17 shows, health, education, and access As well as being inherently important to people’s to essential services are positively correlated with well-being, they are also critical to people’s employment status and consumption in Solomon ability to pursue their livelihoods and thus have Islands. Following a brief outline of trends in public a significant bearing on poverty reduction and expenditure on key services, the subsequent economic development. This is particularly evident sections explain current constraints for each service in the context of the current youth bulge, because and identify opportunities for improved access investment in human capital will be critical to that and quality. youth bulge yielding a ‘demographic dividend’ for Figure 17: Links between consumption welfare and adult educational attainment, child health status, access to sanitation, and employment status Adult education attainment Quintile 100% 1 (Lowest) 2 80% 3 60% 4 40% 5 (Highest) 20% Child health Employment status 0% Improved sanitation Source World Bank staff analysis of 2012/13 HIES. Note Adult educational attainment is measured by the share of the working-age population who attended higher than primary-level education; employment status is measured by the share of the working-age population employed; improved sanitation is measured by the share of households with access to improved sanitation; and child health is measured by the share of children aged 5 and under who are not stunted according to World Health Organization (WHO) standards. 49. Increased public expenditure on the in per capita terms spending has actually declined.44 provision of key services has delivered good results In recent years, donor spending in all three sectors in aggregate, but these have been uneven across has declined in per capita terms. Over the same the country. Public expenditure on policing and period, although the share of public expenditure on justice rose sharply in the immediate post-conflict policing and justice has fallen, that on health and years, with donor spending then contracting sharply education has risen. The sections below will explore after the security situation stabilized (Figure 18). In the level of services achieved in each of these areas, health and education, public expenditure has risen bearing in mind the very challenging context for strongly in real terms since the tension, though in service delivery posed by Solomon Islands’ thinly health that growth has slowed in recent years and dispersed population. 44 Central government expenditure on essential services is not a meaningful indicator, given the significant portion of expenditure in these areas by state-owned enterprises (SOEs) (including as supported by donors) and to a lesser extent also by municipal/provincial authorities. Trends in expenditure on disaster risk management (DRM) and climate adaptation are also hard to discern from budget data, because they are widely dispersed across agencies. 23 | Figure 18: Public expenditure on police and justice, health and education, 2006–2015 Police, Law & Justice, Health Education National Judiciary SI$m SI$ SI$m SI$ SI$m SI$ 1,200 2,500 300 500 600 900 450 800 1,100 2,000 250 500 400 700 350 800 200 400 600 1,500 300 500 600 150 250 300 400 1,000 200 400 100 200 300 150 500 100 200 200 50 100 50 100 – – – – – – 2006 2009 2006 2006 2009 2009 2008 2008 2008 2007 2007 2007 2012 2012 2012 2011 2011 2011 2010 2010 2010 2014 2014 2014 2013 2015 2013 2013 2015 2015 Donor SIG Total, per capita (RHS) Source World Bank staff analysis. 4.1 Peace, Security, and Justice45 elected representatives. Stability at the national level is also supported by super-national institutions—a 50. The existence of peace and security allows legacy of RAMSI—in the form of an effective people to go about their everyday lives without a Australian security guarantee.46 Australia continues generalized fear of violence. Justice, in turn, helps to to provide the Police Commissioner, support to the promote and reinforce security at a general level as strategic planning and tactical response capacity of well as to provide people with an avenue to remedy the RSIPF, and advisors across a number of justice particular wrongs they have suffered. In aggregate sector agencies, including the judiciary. terms, peace, security, and justice are important contributors to stability, the maintenance of the 52. Beyond the risk of escalation into social capital that enables society and the economy widespread conflict and violence, local-level to function, and the existence of private sector dispute mediation systems are important for investment incentives. The institutions that provide everyday security and justice. In urban areas—not security and justice are critical to the management counting informal settlements—the RSIPF is seen of disputes and dissent and the avoidance of future as the key public authority for maintaining law and large-scale conflict and violence. These institutions order, and the formal court system exists. The RSIPF themselves, and the security and justice that they has a clear presence in formal urban areas (with over provide, differ in different parts of Solomon Islands. half of the police officers in Solomon Islands based In general, however, they are hybrid in nature— in Honiara) and generally responds to callouts for drawing on multiple sources of authority and violent crime. The extent to which this has applied influence—and they are often less accessible for to domestic violence is questionable, however, and certain disadvantaged groups—notably women. the extent to which that is changing with initiatives to implement the Family Protection Act is as yet Current Conditions and Constraints unclear. At the same time, most businesses rely on private security firms for their security. With 51. Numerous actors and institutions respect to justice, the court system exists in Honiara contribute to the maintenance of peace in post- but is subject to a significant case backlog and is conflict Solomon Islands. Stability and social order perceived as slow. In other provincial capitals, court are maintained in part through a range of diverse sittings tend to be infrequent and unreliable. There local systems of ‘chiefly’ authority (typically referred are legal aid mechanisms to make the court system to as kastom systems), church authority, and hybrids more accessible to the poor, but their resources of the two. These local systems have varying degrees are very limited. According to the Doing Business of vertical linkages. Most provinces or subregions indicators, it costs nearly 80 percent of the value of within them have hierarchical structures linking up a commercial claim to resolve it through the court chiefly authority at different scales, but this does not system (though at 455 days, the time to enforce extend to the national scale. Churches, on the other claims is below the regional average). hand, do come together at the national level, in the ecumenical Solomon Islands Christian Association, 53. Institutions supporting law and order in which played an important peace-building role informal settlements in and around Honiara are very during the tension. The local systems also interact different from formal areas and vary considerably in varying ways and to various degrees with a among informal areas. Fieldwork research suggests range of state actors, including the Royal Solomon that a striking feature of these informal settlements Islands Police Force (RSIPF), the different levels of is the absence of police presence, despite the the formal court system, provincial authorities, and proximity of the RSIPF in Honiara, Guadalcanal, and—in a few instances, like White River—police 45 This section draws heavily on Allen et al. (2013), World Bank and SIG (2016), and Evans (2017). 46 Australia has made clear that it would still be prepared to mobilize its security forces as necessary to secure peace, in the event of a serious breakdown in law and order or a return to conflict in Solomon Islands. | 24 stations located within settlements (Evans 2017). relation to logging. Across Solomon Islands, logging The RSIPF’s approach to policing in informal is highly correlated with discord, with local disputes settlements tends to be reactive, remaining confined around land ownership and usage, access to and to police stations or absent until a serious incident spending of royalties, rents and access fees, and is reported and then operating a ‘reach and retreat’ the fact that the influx of money and workers fuels approach. This reactive style is unsuited to a context alcohol and substance abuse. These dynamics in where personal relationships are key. Due in part to turn affect norms around marriage and obligations memories of police participation in criminal activity between men and women (particularly adultery and during the tension, disdain for the police tends to be domestic violence) and alter relationships between high in informal settlements, and there is a history of youths and elders. Police, where accessible, are violence against police in some settlements which regularly alleged to support the loggers who are police officers informally admit makes them wary of able to pay for their services. Courts are typically entry.47 Youth complain that when police do enter too slow to be useful or—where orders are issued— settlements they tend to engage with the same these are often ignored.49 With none of the available groups of senior males. As a result, most issues systems able to deal effectively with logging-related of order—including criminal conduct—dealt with disputes (which often involve relatively powerful in informal settlements rely on non-state systems. foreign corporations and decisions made by national These vary by settlement, but typically involve using actors in Honiara), affected citizens are often left kinship groups to support mediation or ‘payback’ without remedy. The sense of grievance is extensive. (confronting the perpetrator with violence or the threat of it) and relying on local governance Outlook and Opportunities arrangements (usually for breaches of kastom or where community cohesion is threatened, involving 55. Rapid urban growth and the continued public reconciliation, sometimes with police pattern of enclave-based natural resource witnesses). While varying in their effectiveness, extraction in rural areas pose considerable risks these systems generally appear to struggle with the to the outlook for security and justice. Rapid magnitude and nature of the disorder in urban areas, population growth in Honiara can be expected in particular newer problems related to kwaso (local to put increased pressure on local governance distilled alcohol), cannabis, alcohol, and gender- institutions, with further overcrowding likely to based violence. They can also be subject themselves exacerbate the drivers of insecurity and disputation to contested leadership and can be limited in their in the absence of adequate public services or effectiveness across language groups in settlements livelihood opportunities. On the current trajectory, where language-based divisions are significant, as logging and other forms of enclave development— in Burns Creek. At the same time, as residents of including mining—in rural areas are likely to continue informal settlements—including youth—exhibit a to undermine kastom and church-based authorities, high degree of disdain for police and the policing as they are unable to cope with the related disputes they experience, they consistently voice support for or have been compromised by them. While kastom a proactive police presence. and church-based authorities have demonstrated considerable capacity to adapt over time, in many 54. In rural areas, the provision of security areas that capacity is being overwhelmed given and justice is also dominated by non-state forms the rapidity of social change and the scale of the of public authority. These consist primarily of disputes surrounding the commercialization of overlapping or hybrid kastom and church-based resources. When these institutions reach breaking institutions, emerging in part to fill the ‘spaces point, they can cease to be sources of resilience of statelessness’ created by state withdrawal and become drivers of conflict. A significant share after independence and with the suspension of of what manifest as ‘local’ disputes in rural areas area councils (Allen 2017). These institutions are result from regulatory failures from as far away generally seen as having a legitimate mandate to as Honiara, for instance with logging. Past efforts deal with disputes and grievances,48 but, as in urban to remedy these failures have had negligible spaces, many are overwhelmed by the extent and results, given the deeply corrosive effect logging changing nature of the order and justice problems has had on executive regulatory authority.50 The they need to deal with. Also, as in urban spaces, they potential remains for ‘local’ disputes and conflicts often seem to marginalize the interests of women to be scaled up into more widespread conflict and and youth. Alongside kinship groups, however, they violence, partly because the ‘local’ disputes have are among the few institutions women suffering linkages with actors and institutions at larger scales gender-based violence can turn to in rural areas. In and partly because the contours of the disputes can many locations, the kastom system is increasingly intersect with island-scale social identities. fragile, unable to deal with disputes arising from the commercialization of land and resources. In some 56. The World Bank’s engagement to date cases, the legitimacy of these institutions is being suggests that Solomon Islanders want to remake undermined by involvement of chiefs and local their connections with both traditional restraints leaders in the contested transactions—particularly in and modern forms of accountability and are willing 47 Anecdotally, requests for police assistance in Burns Creek often go unanswered, but it is difficult to assess police responsiveness in settlements because crime data are not disaggregated geographically within Honiara. 48 Church rivalries can be a source of conflict, however, with church fragmentation correlated with conflict. 49 In general, lower-level courts that ostensibly operate across Solomon Islands, function only sporadically and are largely inaccessible to rural people, due to resourcing problems and centralized administration and sittings. 50 See Hughes et al. (2010) and Cox, Duituturaga, and Scheye 2012. 25 | to invest in doing so. That experience indicates community. This contribution begins in infancy that no single form of state or non-state authority is when brain development is occurring most rapidly, likely to succeed across the country or for all of the with undernutrition in the first 1,000 days of life set of problems and issues that feature in people’s associated with poor cognitive and educational narratives of insecurity and injustice. Where outcomes in childhood and adolescence, as well local, non-state institutions remain legitimate, as lower wage earnings and decreased likelihood their effectiveness may be strengthened through of exiting poverty in adulthood. Wealth disparities formal state recognition and credible connections in reading, language, and cognitive performance with state authority—including police and courts. emerge before children enter primary school, making This reversal of state retreat would not represent investments in early childhood health and nutrition an attempt to supplant these non-state institutions (together with care, stimulation, and learning) —which the state manifestly lacks the reach to critical to addressing inequality and breaking cycles do—but to support them. This is what the World of poverty. Among the working-age population, the Bank’s Community Officers Program does in some poor tend to rely more heavily on their labor for a rural areas, supporting communities to play the main livelihood—rather than having financial capital— role in security and justice but—critically—with a link so health is of disproportionate importance to to the state through their chosen officers, which their well-being. At an aggregate level, a healthy strengthens the authority and utility of the officers.51 workforce is a key factor of production, supporting Appropriate to the diverse context in which they private sector development and economic growth. are operating, there are variations in the way different officers operate, including in the horizontal Current Conditions and Constraints (to kastom, church, and other local authorities) and vertical (to police, provincial and national 58. Population health outcomes have improved authorities) linkages they form. By responding to significantly since the end of the tension, but the the problems and issues prioritized by citizens health system faces several remaining and newly and by having the attention and engagement emergent challenges. There have been significant of some powerful actors, this initiative appears and fairly steady reductions in the incidence of to be well aligned with its context. Critical to the tuberculosis and malaria and in maternal, child, and relevance and impact of this kind of initiative is its infant mortality rates and increases in life expectancy. ability to forge links between local populations and Key health indicators are now a little better than broader state authorities (provincial and national), global averages, given gross national income (GNI) potentially supporting greater accountability of the per capita (Figure 19).52 While further improvements public sector. Its geographic extension, including are necessary to meet national targets and global to informal urban settlements, would appear to goals, they will be difficult to achieve. Immunization be worthy of consideration. Particular efforts to rates have improved, but remain volatile, and recent address the specific needs of women are also critical, outbreaks suggest that coverage is insufficient. to mitigate the extent of their marginalization in Tuberculosis and chronic respiratory infections existing forms of public authority. continue to represent a significant share of the disease burden, and malaria remains a significant 4.2 Health cause of under-five deaths. Like other Pacific Islands, Solomon Islands has a classic ‘double burden of 57. Health makes a direct as well as an indirect disease’ situation, with a high and increasing burden contribution to people’s well-being. In itself, of non-communicable diseases (NCDs), combined being healthy directly improves a person’s quality with ongoing challenges with communicable of life. However, it also contributes to a person’s diseases and maternal, neonatal, and child health. productive capacity, and thereby their income- There are indications that undernutrition in children earning potential and their ability to provide for is a significant problem, with a high prevalence of their own needs and those of their family and stunting and alarming rate of wasting (see Box 3). Figure 19: Key health indicators by GNI per capita, global comparison Infant Mortality, 2015 Life Expectancy, 2015 125 85 75 80 50 Rate per 1,000 Live Births PNG Kiribati FSM 75 Samoa Tonga Vanuatu Marshall Islands Nauru Vanuatu 25 Tuvalu Solomon Islands FSM Fiji Solomon Islands Fiji 70 Samoa Palau Years Tonga Kiribati 10 65 PNG 5 60 55 2 LOWER UPPER LOWER UPPER MIDDLE MIDDLE MIDDLE MIDDLE LOW INCOME HIGH INCOME 1 LOW INCOME INCOME INCOME HIGH INCOME 50 INCOME INCOME 250 500 1000 2500 10000 35000 100000 250 500 1000 2500 10000 35000 100000 GNI per capita, US$ GNI per capita, US$ Source: World Development Indicators; WHO Global Health Observatory Source: World Development Indicators; WHO Global Health Observatory Source WDI; WHO Global Health Observatory. 51 Under this program, the World Bank is assisting the Ministry of Provincial Government and Institutional Strengthening to manage a network of community officers whose primary function is dispute resolution. | 26 52 The position for maternal mortality is similar to that shown here for infant mortality. BOX 3 CHILD UNDERNUTRITION IN SOLOMON ISLANDS Solomon Islands faces the double burden of malnutrition-related diseases, reflected in a high prevalence of child stunting and wasting while rates of overweight/obesity are rising. According to the 2012/13 HIES, 38 percent of children five and under are stunted, a rate considered ‘high’ according to WHO thresholds. Furthermore, 16 percent of children under five are wasted, a level considered ‘alarming’ according to WHO thresholds. Nutrition lays the biochemical foundation for physical and cognitive development. Stunting is a well-established risk marker and proxy population indicator for chronic malnutrition, which impairs child health, development, and well-being. Height growth not accumulated before age two is largely irrecoverable and the cognitive impacts on brain development are largely irreversible. Severe childhood wasting is associated with an 11-fold increase in the risk of mortality. Early life undernutrition also increases later life propensity for the development of NCDs. HIES data indicates that rates of stunting are higher among poor people and for boys relative to girls. The rate of stunting for children in the bottom 40 percent of households is 43 percent, compared to 33 percent for the top quintile. Rates of stunted and wasted children are also generally higher among boys than girls and are slightly higher in rural areas than urban areas. There are considerable variations across provinces, with the rate of stunting highest in Makira (at 46 percent) and lowest in Guadalcanal (at 33 percent). Childhood undernutrition arises from immediate factors such as poor nutrient intake and diseases, as well as underlying factors including food insecurity, poor access to sanitation and unhygienic environments, and poor access to reproductive, maternal, and child health services. Low access to improved water and sanitation and the poor quality of diets are thought to be contributing factors to the high prevalence of stunting in Solomon Islands. Only 27 percent of households have access to improved sanitation and 76 percent to an improved water source, factors reflected in high rates of diarrhea. However, the extent of variations in access to improved sanitation between rural and urban areas and within urban areas is far greater than the variation in stunting rates between rural and urban areas and across quintiles, suggesting other factors are also important. The quality of diet in is generally poor (mostly cereals and starchy root vegetables). In addition, complementary feeding practices among children aged 6–23 months are poor, with inadequate frequency and dietary diversity (indicative data shows that only 37 percent met recommended dietary practices). There is a high anemia rate among women of reproductive age (40 percent), potentially resulting in maternal mortality and poor delivery outcomes including intrauterine growth retardation. Low birth weight, indicating the in utero origins of growth faltering, is high at 13 percent and is associated with young maternal age, short birth intervals, and poor maternal nutrition. Teenage pregnancy rates are relatively high, at 12.3 percent for 15–19 year olds, and there are low rates of met family planning needs. Evidence-based interventions to improve early childhood nutrition and development have much higher rates of return than interventions aimed at addressing skills and capacities in later life. To date, the Ministry of Health and Medical Services (MHMS) has not adopted or consistently implemented interventions proven to prevent and treat undernutrition. There has also been little progress with implementing donor-supported programs in the MHMS to increase access to improved water and sanitation. However, these are only aspects of the problem: all factors that contribute to low levels of empowerment for women (endowments in health and education, economic opportunities, and voice and agency) contribute to high levels of undernutrition in children. Source Lorgelly et al. 2015, FAO 2014, World Bank staff analysis of the 2012/13 HIES. 27 | 59. Solomon Islands is facing sharply increased the higher life expectancy achieved in Solomon morbidity and mortality from NCDs. NCDs now Islands is coming with expanding periods of chronic account for 66 percent of the total disease burden illness and disability for an increasing proportion of (see Table 5), and this is expected to continue to the population, with indirect social costs in the form rise. The five top health risk factors, all of which of unpaid care work by family members, principally are on an increasing trend, are dietary risks, high women and girls—with some girls being taken out of body-mass index, high fasting plasma glucose, high school for this purpose. systolic blood pressure, and tobacco smoke. Thus, Table 5: Top ten causes of disease burden, by disease/conditions, 1990–2015 Rank Disability Adjusted Life Years (DALY) Lost Share Top Ten Diseases/Conditions 2015 1990 2000 2010 2015 1 Cardiovascular diseases 15% 17% 20% 21% 2 Diabetes, urogenital, blood, and endocrine diseases 6% 9% 11% 12% Diahrrea, lower respiratory, and other common 3 18% 12% 10% 8% infectious diseases 4 Other non-communicable diseases 5% 6% 7% 7% 5 Neonatal disorders 10% 9% 7% 6% 6 Neoplasms 4% 5% 5% 6% 7 Chronic respiratory diseases 6% 6% 6% 6% 8 Musculoskeletal disorders 3% 4% 4% 4% 9 Mental and substance use disorders 3% 4% 4% 4% 10 Nutritional deficiencies 3% 3% 3% 3% Source Institute for Health Metrics and Evaluation (IHME) database. 60. Few indicators of health status in Solomon 61. Disparities in access to health services Islands can be disaggregated by income group, remain a significant challenge in Solomon Islands. On but most of the ones that can show better health the positive side, health services are largely publicly with higher socioeconomic status. HIES data on the provided and free. At less than 0.2 percent of total height, weight, and age of children show that rates household expenditures, out-of-pocket (OOP) health of stunting and wasting tend to be higher among the expenses in Solomon Islands are one of the lowest poorer quintiles and in rural areas. The prevalence regionally and globally. However, OOP expenses do of cigarette and alcohol consumption is significantly not include indirect costs such as transport (or time), higher among men than women, and while smoking which are significant for rural and remote areas in rates vary little by quintile, the prevalence of drinking the country. The World Bank’s Health Equity Analysis rises with income. The last Demographic Health based on the 2012/13 HIES shows that on average Survey (DHS) for which the data are available people in the bottom two quintiles take 1 hour and 20 (2006/07) disaggregates indicators of health minutes to reach a health facility, compared to those status on the basis of educational level, with a fairly in the top quintile who take only 20 minutes. With consistent pattern of generally improved indicators the exception of Honiara, households report they with higher levels of education (for instance, lower would access the closest health facilities to them infant and child mortality, higher child immunization rather than area health centers or provincial hospitals rates, lower anemia among women, and higher rates that are significantly further away. For the majority of mosquito net use among pregnant women). On of households, that means nurse aid posts and rural the other hand, being overweight or obese appears health clinics that are a half hour walk away on positively correlated with education. Indicators of average. These facilities are often understaffed and health status—and health services—also vary by under-resourced. As income increases, households province (see Figure 20), with some large differences are less likely to report that they would access nurse between the best and worst indicators. For example, aid posts and rural health clinics and more likely to for 2013–2015 the under-5 mortality rate (not shown report that they would access area health centers, in the chart) in Western Province was 21 deaths provincial hospitals, the national referral hospital, per 1,000 live births, but in Rennell and Bellona and private services.53 The World Bank’s analysis thus Province was 47. suggests that transport is a binding constraint on access to health services—only with urban proximity and/or wealth (and vehicle use) does the quality of services affect decisions. 53 The 2006/07 DHS shows a similar pattern of generally improved indicators of access to health services with higher levels of education (for instance, lower unmet needs for family planning, higher rates of birthing in hospitals or health facilities, and higher rates of access to qualified personnel for postpartum care). | 28 Figure 20: Provincial variation in selected health and health service indicators, 2013–2015 3 Quintile Renbel (28.8) Renbel 2.5 Honiara (135%) Renbel (34%) Malaita Renbel (100%) 2 Temotu 1.5 Choiseul ( 17.8%) Honiara Province deviation from national statistic Central Islands (94) (province-level Standard deviations) 1 Central Islands 0.5 Makira Western 0 Guadalcanal -0.5 Malaita (85.1%) Isabel -1 Honiara (0%) Choiseul Western (14.9) Renbel (45%) -1.5 Solomon Islands Renbel (5.6%) Renbel (0) -2 Infant mortality Malnourished Measles Malaria annual Tuberculosis Unsupervised rate (deaths per children (%) immunization parasite incidence treatment delivery (%) 1,000 live births) coverage (%) (per 1,000 success population) rate (%) Source MHMS 2016. Note Marker labels report maximum and minimum provincial statistics in parentheses. Outlook and Opportunities family planning, gender-based violence, and other aspects of women’s empowerment in components 62. Going forward, a number of challenges of education, skills, and public works programs. need to be addressed in the health sector to support improved health outcomes, particularly 63. While improvements can continue on the for the poor and those living in rural areas. After supply side, their sustainability is likely to remain half a decade of increasing real per capita public limited in the absence of demand-side pressures. expenditure on health, the trend is now reversing as To date, executive interest in the functioning of the government’s overall budget resources tighten, health systems has been minimal, significantly financial support from the Australian Department of undermining the strength of vertical accountability Foreign Affairs and Trade (DFAT) declines, and some relationships. It is donors, rather than the executive, development partners are reducing or graduating that have applied the main pressure for improved out of parallel health programs with the expectation system performance and service delivery—but that the capacity and resources required can be as continuing weaknesses in governance and provided by government. The health sector is thus accountability show, this is not a full substitute. faced with the challenge of doing more with less, at There appears to be scope to better align public the same time as the burden of disease is becoming health priorities with political interests—particularly increasingly complex. Over the last decade, there given the demonstrated interest of at least some have been significant improvements in the MHMS in MPs in clinics in their constituencies. The MHMS is planning, management, and financial systems, with developing a Role Delineation Policy (RDP), defining progress in tackling fragmentation and in moving specific service delivery packages for each tier of more health programs on plan, on system, and on the system to match health needs at each tier— budget. There have also been notable improvements including clear roles, responsibilities, and reporting in the supply side of service delivery—for instance lines at all levels of the health sector.55 The RDP pharmaceutical supply availability improving not just reflects a more deconcentrated approach to health in Honiara but in provincial centers (from 50 percent service delivery, and while it will not necessarily in 2007 to 90 percent in 2016) and across rural health be more affordable, it may provide a platform for clinics (from 40 percent to 82.5 percent). Further better integrating MPs’ interests with health system improvements tackling bottlenecks in the system functioning (rather than CDFs building facilities are in prospect. More needs to be done to improve without staff or supplies, for instance, they could the efficiency of spending, targeting both large support local service delivery packages). By defining expenditure areas and areas with a large return on service standards, the RDP may also provide a investment (typically, equity-enhancing measures).54 platform on which greater citizen accountability for There are also more opportunities to exploit in other health service delivery could be built, though to be sectors to support health concerns—for instance on sustainable it would need to be reinforced by vertical linkages to public authority. However, some of the 54 For details and options, see the World Bank’s Health Financing System Assessment: Spending Better. 55 By being defined around health needs in each tier, the RDP has the potential to better support primary care, including the provision of prevention and early testing services for NCDs (crucial if Solomon Islands is to avoid having its scarce health resources captured by the treatment of NCDs in the more advanced and costly stages) and communicable disease prevention and control (particularly given increased risks of diarrheal and vector-borne diseases with climate change).To be successful, among other things, the MHMS will need to resolve the difficulties it has had to date posting qualified personnel to the provinces and getting them to remain there. 29 | more entrenched health challenges faced—like child A key component of human capital development, undernutrition—require coherence and coordination education contributes to a person’s productive not just across the health sector but across a range capacity and income-earning potential. The HIES of government institutions covering agriculture and shows the clear pattern of higher levels of education fisheries, education, the status of women, transport, among higher income quintiles, as well as in urban water, and sanitation. The prospects for achieving areas (Figure 21). It also shows the close association this kind of policy commitment and state capacity between higher levels of education and greater are not strong, so development partners may well access to paid employment (Figure 22). While at an need to consider the public good justification for individual level education is a key determinant of providing ongoing, extensive support on such issues, the type of job a person can secure, at an aggregate effectively supplementing the state. level education is an important determinant of the types of industries the economy can support. Given, 4.3 Education as we saw above, that wealth disparities in reading, language, and cognitive performance emerge before 64. In combination with good health and primary school, universal fee-free basic education— nutrition, basic education—including early including ECE—is of disproportionate importance to childhood education (ECE)—contributes to the poor, providing a critical opportunity to address cognitive and social development and learning. inequality and break cycles of poverty. Figure 21: Shares of household education by quintile, and by urban and rural area 100% Attended higher education Attended senior secondary Province deviation from national statistic (province-level Standard deviations) 80% Attended junior secondary Attended primary school 60% Never attended school 40% 20% 0% 1 2 3 4 5 Urban Rural (Lowest) (Higest) Source World Bank staff analysis of 2012/13 HIES data. Figure 22: Shares of economic activity by education level, disaggregated by gender 100% Student Percentage of working-age population (aged 18-65) Inactive 80% Subsistence Producing good for sale/ own business 60% Employed 40% 20% 0% Never Attended Attended Attended Never Attended Attended Attended attended primary secondary higher attended primary secondary higher school school school education school school school education Female Male Source World Bank staff analysis of 2012/13 HIES data. Note ‘Subsistence’ includes individuals producing goods for own household consumption, unpaid domestic family workers, homemakers, and volunteers; ‘Producing goods for sale/own business’ includes unpaid workers in family businesses; ‘Inactive’ includes those who are retired, too old to work, and others who did not pursue any activity. | 30 Current Conditions and Constraints performance, and learning outcomes are not available. However, the proportion of ECE teachers 65. Access and quality challenges in education who are certified to teach has been improving in Solomon Islands begin in ECE. Gross enrolment over time, to now be just under half. The Ministry in ECE is limited by a combination of limited of Education and Human Resources Development centers and places and the distance some children (MEHRD) has been piloting mother-tongue ECE and would need to walk to reach the nearest center early primary materials and teaching in two areas, (see Table 6).56 The lower net enrolment rate is with good results in learning and in the subsequent an indication of the high proportion of overage transition to English. The MEHRD consider this children in ECE, seemingly due to late enrolment— approach worth expanding, but with 70 distinct which then contributes to overage enrolments languages in use, the challenge would be immense. throughout the rest of the system (see Figure 23). Aside from these pilots, education materials tend to This is no gender disparity in ECE, but HIES data be in English, whereas the language of instruction suggest that attendance rates and age-appropriate is typically Pijin, in some combination with English, attendance rates are higher in urban areas.57 On depending on the teacher and level. quality, indicators of learning resources, teacher Table 6: Gross and net enrolment by school level, and gender parity, 2014 Gross Net GPI GPI Enrolment Enrolment (of the (of the Rate (GER Rate (NER) GER) NER) ECE 49.9 34.3 1.0 1.0 Primary 113.0 88.4 1.0 0.97 Junior Secondary 77.2 42.2 1.0 1.1 Senior Secondary 34.2 28.6 0.9 1.0 Source MEHRD 2015a. Figure 23: Age-level school attendance by gender and rural and urban areas58 100% At SSS At JSS 80% At primary At ECC 60% 40% 20% Boys Boys Boys Boys Boys Boys Boys Boys Girls Girls Girls Girls Girls Girls Girls Girls 0% 3-5 6-12 13-15 16-19 3-5 6-12 13-15 16-19 year olds year olds year olds year olds year olds year olds year olds year olds (ECE age) (primary (JSS age) (SSS age) (ECE age) (primary (JSS age) (SSS age) age) age) Urban Rural Source World Bank staff estimates based on the 2012/13 HIES. Note JSS= Junior Secondary School; SSS= Senior Secondary School. 56 Unless otherwise stated all figures are for 2014 from MEHRD’s Performance Assessment Report: 2010-2014. 57 The HIES records attendance, rather than enrolment, so HIES-based figures will not match official enrolment statistics. Age-appropriate attendance from the HIES has been calculated using the official age groups. 58 These survey data on attendance compare to official nationwide net enrolment rates in 2013 of 89 percent at the primary level, 42 percent at the junior secondary level, and 29 percent at the senior secondary level. 31 | 66. Access to primary education is now good, to lower age-appropriate attendance in rural areas but its quality is a significant concern. Gross overall, it may contribute to the lower net enrolment enrolment is now well over 100 percent, but net rate for girls. With respect to quality, although the enrolment is below 90 percent (and its recent trend numeracy standards achieved are quite strong, is declining— meaning a rise in the proportion of the literacy standards achieved—particularly for out-of-school children). The large gap between writing—are weak (Table 7).59 Teacher quality is gross and net rates is due to a combination of a likely contributor to poor outcomes—with only overage entry, grade repetition, and dropouts. 64.4 percent of primary teachers certified to teach Almost one in five students in primary school is (though the proportion is rising). Students in urban overage and the survival rate in 2013 (the proportion areas outperform their rural counterparts, despite of students entering Prep and reaching Year 6 overcrowded classrooms (60 per classroom in without repeating or dropping out) was only 63 Honiara versus about 20 percent elsewhere), higher percent (67 percent for boys, 60 percent for girls). student-teacher ratios (42.5 versus about 38), and The net enrolment rate for girls is slightly lower than higher student-textbook ratios (32.5 versus about 7). for boys. While there are no school fees for primary Teacher absenteeism and ineffective use of school education, schools charge ‘voluntary’ levies which grants is reportedly significant, but difficult for the can be a barrier for poorer families. A quarter of MEHRD to detect, with parents and communities rural children have to walk more than half an hour typically not holding teachers and principals to to school, and although this does not appear to lead account (perhaps because of their social status). Table 7: Proportion of primary school children achieving adequate literacy and numeracy standards, 2013–2015 Literacy (Reading) Literacy (Writing) Numeracy 2013 2015 2013 2015 2013 2015 Year 4 66.6 75.6 32.3 15.2 66.7 76.3 Year 6 62.4 61.5 61.1 31.0 86.6 90.5 Source MEHRD 2015b. 59 Estimates of the adult literacy rate vary substantially, from 89 percent for males and 79 percent for females based on self-reports from the census in 2009, to only 17 percent based on a functional literacy test administered to a sample of the population. The latter reinforces what the primary school tests show: a fundamental problem with the quality of basic education. | 32 67. Access is a fundamental problem in There is no gender difference in gross enrolment at secondary education, particularly for rural junior secondary school, but the girls who attend children. Though rising, net enrolment rates for are less likely to repeat grades, so the GPI is 1.1. At junior and senior secondary education are below the senior level, gross enrolment for girls is lower,60 global averages based on GNI per capita (Figure 24). but their reduced repetition brings the GPI up to 1.0. Overage entry and grade repetition drive the large Across the transition from Form 5, only 85 girls who gap between gross and net enrolment at the junior were in the previous grade are placed in Form 6, for secondary level. The thinly dispersed population is every 100 boys. This figure conceals a significant critical to access, with high costs imposed by the rural-urban disparity, with a lower placement rate need for half of secondary students from rural areas for girls in rural areas partially offset by parity in to live away from home. Levies pose an additional Honiara. HIES data suggest that although school barrier to access, together with school fees at the attendance at secondary level are not significantly senior secondary level. However, even so, there is different between rural and urban areas, age- unmet demand for places in secondary schools, appropriate school attendance in rural area is only with exams at the end of Year 6, Form 3, and Form about half that in urban areas. Secondary schools in 5 playing a role in the rationing of places. At each Honiara are overcrowded (78.5 per classroom versus of these transition points, dropout rates increase. about 35 elsewhere) and have higher student- Strikingly, the survival rate in 2013 (the proportion of teacher ratios (50.5 versus about 28), but learning students entering Prep and reaching Form 7 without standards are typically better. The proportion of repeating or dropping out) was just 5.7 percent. secondary teachers who are certified to teach has Gender differences become more pronounced now risen to 77.1 percent. at the secondary level, but in complicated ways. Figure 24: Primary and secondary enrolment rates by GNI per capita, global comparison Primary Net Enrolment Rate, 2014 Secondary Net Enrolment Rate, 2014 100 Samoa Palau Kiribati Tonga 90 Samoa Tuvalu Nauru Tonga Solomon Islands 70 Nauru 80 FSM Tuvalu 50 60 Solomon Islands Percent Percent 30 40 HIGH INCOME LOWER UPPER LOWER UPPER MIDDLE MIDDLE MIDDLE MIDDLE LOW INCOME LOW INCOME HIGH INCOME 20 INCOME INCOME 10 INCOME INCOME 250 500 1000 2500 10000 35000 100000 250 500 1000 2500 10000 35000 100000 GNI per capita, US$ GNI per capita, US$ Source WDI; WHO Global Health Observatory. 68. While the National Education Action irrespective of the merit of the student or area of Plan (NEAP) recognizes the weaknesses in basic study. The current transfer of the management of education and the high dropout rates at secondary scholarships to a separate body is unlikely to reduce level, public education resources are increasingly their budgetary cost or political involvement with skewed toward tertiary scholarships. As Figure 25 them, but it might enable MEHRD management shows, the budget for tertiary scholarships has risen and staff to focus fully on basic education—rather substantially over the last decade, from 9.4 percent than being diverted to the very difficult area of for 2009–11 to 23.5 percent for 2015–17, primarily scholarship administration. Meanwhile, the capacity at the cost of the secondary education budget. of technical and vocational education and training Both from budget allocation choices and from (TVET) centers is very limited. The network of Rural MPs’ engagements with the MEHRD, it is evident Training Centres (RTCs) and TVET centers has fewer that tertiary scholarships are MPs’ primary focus in than 2,500 places. Only 22 percent of enrolments education. Labor market surveys do show shortages are secondary school age (less than one percent in numerous technical skills requiring tertiary of secondary school age children)—indicating the education, and the government has an established limited extent to which these serve as second- system for identifying the areas that tertiary chance opportunities for those not in secondary scholarships should be allocated to, but even the school. Also, only 26 percent of RTC and TVET high budgets allocated for tertiary scholarships are enrolments are female. regularly overspent and there is a degree to which MPs are able to personally allocate scholarships, 60 Reportedly, girls who become pregnant are frequently denied places at secondary schools. 33 | Figure 25: Education budget allocations 100% 100% Scholarships 9.4% 23.5% Tertiary 7.6% 3.0% TVET 80% 80% 5.7% Secondary 2.4% Primary 38.7% 60% 60% ECE 27.8% Admin 40% 40% 34.6% 33.0% 20% 20% 1.9% 4.3% 4.8% 3.3% 0% 0% 2009-11 2015-17 Source MoFT, World Bank staff estimates. Outlook and Opportunities nongovernmental organizations (NGOs) are involved in particular aspects of the sector, such as 69. In considering possible avenues to ECE and adult literacy. Clearly, the MEHRD cannot strengthen education outcomes, the hybrid control the actual provision of education. For it to be nature of authority in this sector and its wider effective, it must work with the active involvement political economy must be accounted for. The of the provincial, church and other authorities that MEHRD is mainly responsible for policy, curriculum, do control educational provision. Overlaying this materials, and the payroll for established teachers, hybrid system of authority is a political economy while provincial authorities and an array of church where patronage opportunities from scholarships and other authorities operate nearly all of the are of greater interest to political elites than the schools (see Table 8). In addition, the New Zealand provision of quality universal basic education. Even Ministry of Foreign Affairs and Trade and DFAT with major donor engagement in the sector since have played significant roles in policy, planning, the tension and deductions from budget support financial management, and infrastructure financing due to overspending on scholarships, this political in recent years and numerous other donors and economy has proven impervious to influence. Table 8: Total number of schools by authority type, 2014 Church Province National Other Total Kindergarten 93 357 - 5 455 Primary School 143 361 - 3 507 Community High School 53 167 - 3 223 Provincial Secondary School - 14 - 1 15 National Secondary School 10 - 2 - 12 Rural Training Centres 35 7 - 1 43 Source MEHRD 2015a. | 34 70. Given this context, it is likely to be materials. Social safety nets for education costs extremely difficult to improve the quality of basic (levies, fees, and boarding costs) for the poorest education through existing systems. The general groups and expanded second-chance opportunities absence of political interest in the quality of basic (in basic literacy, numeracy, and livelihoods training, education undermines the scope for building vertical not only TVET), would also be beneficial. accountability linkages in the sector. Without such vertical linkages, attempts to build community- 4.4 Essential Services level accountability for school management and teacher performance are likely to be difficult to 71. Essential services (water, sanitation, waste reinforce and sustain. It may be possible to foster disposal, and energy) are inherently important such linkages with provincial and church authorities, to people’s well-being, including their health and if their capacity for management and monitoring the health of the environment in which they live. is expanded—but again, it is unclear where the These services also provide a critical foundation pressure for performance on those authorities will for social service delivery (for instance, electricity come from. Though very challenging, this does not for vaccination programs or studying after daylight mean that no progress on educational quality can be hours). In addition, essential services provide a achieved until the context changes. In the similarly critical foundation for private sector development. challenging context of Papua New Guinea (PNG), for In their absence, for instance, rural households instance, the World Bank’s ‘READ-PNG’ project has cannot refrigerate perishable farm and fisheries yielded significant improvements in literacy results products for later market sales, productive activity from interventions increasing the availability of is largely confined to daylight hours, and industries books and learning materials and promoting reading cannot establish unless they develop their essential through professional development, professional services. The thinly dispersed population and teacher networks, and public reading campaigns. divided terrain of Solomon Islands poses particular Assessing contextual similarities and differences challenges for essential services, because the unit and the potential applicability of this approach costs of infrastructure are frequently prohibitive. to Solomon Islands, as well as the sustainability In global terms, the scarcity of essential services in of the original outcomes in PNG, would appear Solomon Islands is striking (Figure 26).61 Improving well worthy of consideration. At the same time, access to essential services would bring important work under the NEAP should continue to improve benefits to women, because they tend to bear a educational access and potentially quality, through disproportionate burden of increased household additional investment in schools, classrooms, and work in the absence of these services, and their teachers, increasing the proportion of certified safety is more at risk when sanitation facilities are teachers, updating curricula, and improving learning not available within reach of their homes. Figure 26: Access to essential services by GNI per capita, global comparison Access to Improved Sanitation, 2015 Access to Electricity, 2012 Samoa Samoa 100 Tonga Fiji Palau 100 Tonga 80 RMI 80 FSM Fiji Nauru 60 FSM 60 Palau Kiribati RMI Tuvalu 40 Kiribati 40 Solomon Islands Vanuatu Solomon Islands 20 20 PNG Percent Percent LOWER UPPER LOWER UPPER MIDDLE MIDDLE MIDDLE MIDDLE INCOME INCOME INCOME INCOME LOW INCOME HIGH INCOME LOW INCOME HIGH INCOME 250 500 1000 2500 10000 35000 100000 250 500 1000 2500 10000 35000 100000 GNI per capita, US$ GNI per capita, US$ Source WDI. Source: World Development Indicators 61 The situation with access to an improved water source is better than other essential services, on par with GNI. 35 | Water: Constraints and Opportunities 73. Reforms to SIWA offer potential for better water access and quality in Honiara and other 72. Rural or urban location is the primary urban areas, but the situation in rural areas remains determinant of water access in Solomon Islands, challenging. The reform of SIWA began in 2011, with income playing a secondary role. In rural with donor support. It focused on putting SIWA on areas, households and communities arrange their a commercial footing through improved metering, own water supplies, and most rural households billing, and collections, reduced non-revenue water, depend on communal standpipes (Figure 27). Those basic operational and maintenance improvements, without an improved water source rely on surface strengthened management, and investment in water, rainwater, or hand-dug wells. A key problem infrastructure needed to improve the efficiency, with water supply in rural areas is maintenance: reliability, and quality of water service. The improved many communities have had multiple water systems financial and operational performance of SIWA now provided for them by MPs (through CDFs), donors, means it has the capacity to expand access to water or NGOs, who have all demonstrated a strong in already served urban areas, but actually achieving interest in supplying the small-scale infrastructure this is likely to be hampered by the lack of a title but who have done much less to ensure it can be for many residents in informal settlements. There properly maintained. It is estimated that half of rural is anecdotal evidence that higher user fees now communal standpipes are not fully operational. The charged for water—following a tariff review allowing Solomon Islands Water Authority (SIWA) operates in water prices to be adjusted upwards so SIWA Honiara and four provincial urban areas,62 providing could pay its bills and arrears—are resulting in the water derived from resources it leases from disconnection of some poorer households. For rural landowners.63 Although access to an improved water areas, donors and NGO projects continue to replace source exceeds 90 percent in urban areas, piped or upgrade water supply infrastructure, and the water is only universally available in formal areas. emphasis on strengthening capacity to operate and At the time of the 2009 census, only an estimated maintain local water systems is increasing. It is less 40 percent of households in informal settlements clear how incentives could be provided for CDFs to around Honiara had access to metered piped water, support community structures and resources for with communal standpipes serving most others. operations and maintenance, not just infrastructure Rapid urban development, aging infrastructure, and supply. But there could be ways a program like the leakages make the supply and quality of water by World Bank’s Rural Development Program could SIWA unreliable, especially in informal settlements play a complementary role, working in conjunction (wealthy residents can turn to private water tanks). with CDFs to support the establishment, training Across Solomon Islands, women usually bear the and resources of community groups who could time and physical burden of collecting water—with secure the water infrastructure they require through the burdens highest in rural areas and for the urban CDFs. poor. Water quality and scarcity is likely to become more challenging with climate change impacts. Figure 27: Water source by quintile and by urban and rural areas 100% Other Pay for bottled water 80% River / Spring Unprotected well 60% Protected well Community tank 40% Household tank Communal standpipe 20% Metered SIWA 0% 1 2 3 4 5 Urban Rural (Lowest) (Higest) Quintile Area Source World Bank staff analysis of 2012/13 HIES. 62 Provincial governments are responsible for the water supply in other urban areas. 63 Water supply disruptions often arise from disputes about late payment for water leases, disagreements over land tenure, or attempts by landowner claimants to obtain higher payments for these water resources. | 36 37 | Sanitation: Constraints and Opportunities level of access to improved sanitation in urban areas is important for human health, the systems 74. While the key determinants of access underpinning it are not protecting environmental to sanitation mirror those for water, the level health. SIWA’s piped sewerage system covers only of deprivation for sanitation is far more acute, half of Honiara, and the sewage is piped untreated in turn posing a threat to water quality. Access into the ocean through 12 outlets around the city. to improved sanitation in Solomon Islands is the Septic systems and pit latrines in urban and rural lowest in the Pacific. In rural areas, only 16 percent areas are often poorly constructed and maintained, of households have access to improved sanitation— and fecal sludge collection and treatment is virtually all through pit latrines (Figure 28)—and the not widely available, leading to water and soil rate of open defecation is reported as 66 percent.64 contamination. Low levels of access to safe water The contrast with urban areas is stark, where 68 and sanitation lead to considerable health problems, percent of households have access to improved with an estimated 200 deaths per year attributable sanitation and the rate of open defecation is to diarrhea and other water-and sanitation-related reported as 9 percent. Access varies considerably problems. The risks of drinking water being between formal and informal settlements, however, contaminated by sewage increase with heavy rains with a private flush toilet typical in formal areas, but and flooding, events likely to become more frequent a pit latrine or reliance on community facilities more with climate change. common in informal settlements. While the greater Figure 28: Sanitation facilities by quintile and by urban and rural areas 100% Other River / Stream 80% Seaside, mangrove Pit latrine (community) 60% Pit latrine (private) Slab toilet (community) 40% Slab toilet (private) Flush toilet (community) 20% Flush toilet (private) 0% 1 2 3 4 5 Urban Rural (Lowest) (Higest) Quintile Area Source World Bank staff analysis of 2012/13 HIES. 75. As with water, reforms to SIWA are likely Waste Disposal: Constraints to support increased access to improved sanitation and Opportunities in Honiara, but the situation in rural areas remains very challenging. While the improved financial and 76. Like wastewater, solid waste management operational performance of SIWA better positions poses a considerable environmental health hazard, it to increase the rate of sewerage connections, one likely to increase with climate change impacts. that outcome depends on whether households There are no solid waste disposal services in rural can afford SIWA’s connection fees and—in informal areas, with rubbish building up on land, burned, settlements—provide adequate title. Even if access or pushed into the sea. The HCC is responsible for expands, without better sewerage treatment and solid waste collection and management in Honiara,65 fecal sludge management for septic systems and but public collection services tend to be patchy in pit latrines, wastewater will become an increasing both coverage and regularity. Wealthier residents environmental and human health hazard in Honiara. typically pay for private waste collection services. In rural areas, several donors are working to provide Wealthier residents typically pay for private waste or upgrade sanitation facilities. However, community collection services. Otherwise, littering is prevalent, engagement to create demand for behavior and solid waste is dumped openly in public areas, change, as well as supply chains for sanitation burned, or pushed into the sea. Where it blocks drains equipment and the labor skills needed to install and streams, solid waste contributes to localized and maintain that equipment in the context of such flooding after heavy rainfall. There is a landfill site small, spread-out communities, is likely to remain a serving Honiara, which has been upgraded in recent significant challenge. years with donor support to reduce the pollution emanating from it—which is exacerbated by heavy 64 This estimate, from UNICEF and WHO (2015), may overstate the rate of open defecation, because not all of the response options in the 2012/13 HIES enable open defecation to be distinguished from other forms of sanitation. 65 Provincial governments are responsible for solid waste management in the other urban areas. | 38 rains and flooding—but the site is rapidly reaching lamps (Figure 29).66 This equipment has mostly capacity, so a replacement is required. As well as been supplied by MPs (through CDFs) and donor comprehensive provision of reliable services— and NGO projects. In contrast, the major source perhaps beginning with more concentrated urban of electricity for urban households with sufficient spaces, significant investment in behavior change electricity for lighting is the grid run by Solomon would be required. Islands Electricity Authority (SIEA). Most other urban households rely on solar units or lamps (more Energy: Constraints and Opportunities usual in informal settlements). A lower-tiered access for households in rural areas and in informal urban 77. Access to electricity is improving in both settlements may be appropriate initially, when rural and urban areas, though the type of service consumption is low, but it does provide a different is very different. As we saw earlier in Table 3, in level of service (including with respect to continuous contrast to other essential services, there were supply) and has limited adaptability for scaled-up significant increases in access to electricity for use for productive purposes. As effective demand lighting between the 2005/06 and 2012/13 HIES, increases in progressively more areas of Solomon particularly in rural areas. For rural households with Islands, higher-grade, scalable or grid-connected sufficient electricity for lighting, the vast majority electricity access will be required. use solar units owned by the household or solar Figure 29: Source of energy for lighting by quintile and by urban and rural areas 100% Other Kerosene lamp 80% Solar lamp Electricity – Other 60% Electricity – Solar unit (community owned) Electricity – Solar unit 40% (household owned) Electricity – Generator (community owned) 20% Electricity – Generator (household owned) Electricity – SIEA 0% 1 2 3 4 5 Urban Rural (Lowest) (Higest) Quintile Area Source World Bank staff analysis of 2012/13 HIES. 78. Following successful reforms to SIEA obstacle in some instances. In Honiara and selected (see Box 4), it is embarking on ambitious grid outstations, SIEA—with World Bank support—is expansion plans. Its objective is to double its expanding access for low-income households, both number of customers to 30,000 by 2021, through in already served areas and in new areas which the the expansion of the Honiara grid and establishment distribution network is being extended to cover. of new ‘outstations’ (mini-grids) in other provinces.67 This involves a significant subsidy, to cover the Since Solomon Islands uses a national uniform extremely high cost of new electricity connections— tariff, and given the weight of Honiara (where 90 equivalent to around 15 percent of the median annual percent of electricity is produced and consumed) household income in Honiara.68 While the initiative is in determining that tariff, the higher costs of being met with significant interest, it is facing some service delivery in the outstations are effectively difficulties because SIEA requires evidence of land cross-subsidized by consumers in Honiara. This, in title to lay connections to houses, and many low- turn, means that the profitability of its operations income households have no formal title as either in Honiara have an important influence on the owners or tenants (a particular problem in informal resources available to SIEA to improve electricity settlements).69 In most rural areas, where small access in other provinces. In provincial urban areas, population densities make mini-grids unviable, MPs SIEA plans to build new outstations, potentially (through CDFs) remain a key source of electricity increasing the proportion of households with a grid infrastructure for households.70 There are also a connection (albeit concentrated in more densely number of small-scale donor-funded renewable populated areas initially). Securing access to land energy initiatives in rural areas. for the planned outstations is proving a significant 66 Similar patterns are evident with the types of energy rural (and informal urban) households use for cooking. 67 This objective is reflected in Solomon Islands National Energy Policy (SINEP), but is SIEA’s initiative. 68 The cost exceeds US$1,000 per connection, due primarily to the high cost of having in-house wiring installed by the limited number of licensed electricians (a safety precondition set by SIEA). 69 There is a current government initiative to offer FTEs to households in some informal settlements, but not all have the savings to pay the SI$ 2,000 premium. Among the few who obtained an FTE previously, those who did not pay the SI$ 200 rental annually thereafter are also unable to furnish good title. 70 While SINEP has rural electrification objectives, the only significant government program operates via CDFs. 39 | BOX 4 THE SUCCESSFUL REFORM OF SIEA In the last decade, there has been a remarkable turnaround in the performance of SIEA. At the end of 2007, SIEA’s performance was poor—on average, customers had their power interrupted at least twice a day and were without power for nearly 2.5 hours a day, largely due to lack of generation reserves and network outages. SIEA’s poor financial position was due to a low collection rate, significant customer arrears (including government ministries and other SOEs), high fuel costs, significant non-technical losses, poor billing and accounting systems, and weak internal controls. The frequent and lengthy power-outages reduced household and business productivity and raised costs through damage from power fluctuations and (for businesses and wealthy households) the need to maintain generator-based backup systems. By 2011, SIEA had reached a point of financial crisis. It was close to insolvency, with severe cash-flow problems, and faced the threat of curtailed fuel deliveries, risking power rationing across urban areas. Subsequently, SIEA has increased generator efficiency and improved maintenance arrangements, improved reserve margins by overhauling cooling systems and boosting available capacity, improved fuel supply competitiveness, addressed metering deficiencies and fraud at large commercial customers, shifted to pre-paid meters for the majority of customers, improved customer service, and reformed its financial management and internal audit systems. After two decades of underinvestment due to the previous poor financial position, SIEA has commenced a significant program of capital investment in generation, transmission, and distribution infrastructure—including to expand the reach of its services. The capacity and reliability of the power system has improved and the collection ratio is now high (Table 9), though significant work remains to further reduce system losses. A number of factors contributed to this turnaround. The government provided an opening for the World Bank to assist SIEA through the Solomon Islands Sustainable Energy Project (SISEP), approved in 2008. Initial progress was slow, however. A vital complement to SISEP was the 2007 SOE Act and 2010 SOE Regulations (supported by the ADB), which provided a new framework for SOE governance, accountability, and performance, and also reestablished a mechanism for community service obligations. A new board was appointed in 2010 under the new regulations, with members selected on the basis of professional and technical expertise, in contrast to the previous practice of political appointments. The effective implementation of the act and regulations at SIEA resulted in improved corporate governance and closer oversight of management performance and guided the design and implementation of a restructuring plan. The near insolvency of SIEA in 2011 then catalyzed action by MoFT to broker a new deal to have SIWA’s debts to SIEA paid (SIWA being its largest customer, with debts accumulating from 2008), and to implement fundamental reforms at SIWA (including replacing its board, appointing new management, and allowing water tariffs to be indexed to allow for electricity price pass-through). The electricity bills of other government entities were also to be paid on time, with MoFT making them on behalf of the other ministries. After years of accepting a norm of constant problems with SIEA and poor quality electricity services at high prices, the near crisis at SIEA catalyzed sufficient government commitment—including the interest and involvement of the Minister of Finance—to enable the reforms to proceed. The influence of donors was also important, with expatriate advisers holding important roles in MoFT and the restructuring of SIWA’s debt to SIEA being included in the joint policy matrix for budget support. Donors supported reforms and investments at SIWA that were instrumental to improving the situation at SIEA. The remarkable turnaround of SIEA provides a powerful demonstration of how well SOEs can work—a demonstration of benefits that may strengthen the hand of those in government arguing for similar reforms in other SOEs. Table 9: Changes in SIEA operational performance, December 2007–September 2016 2007 2016 System average interruption duration index (SAIDI) (minutes per customer per year) 51,840 3488 System average interruption frequency index (SAIFI) (interruptions per customer per 816 47 year) System losses - commercial (percent) 16 11 System losses - technical (percent) 11 11 Collection ratio (percent) 72 92 Source World Bank staff. | 40 79. The extent to which the increased 4.5 Disaster Risk Management availability of grid connections will translate into and Climate Adaptation increased access will depend critically on the price of electricity. At present, the retail price of 80. DRM and climate adaptation are critical electricity of about US$0.65 per kWh is one of the to the lives and livelihoods of Solomon Islanders, most expensive in the world. This is mainly due to particularly the poorer quintiles who tend to be the high cost of generating electricity from diesel the most vulnerable. As articulated in its Intended generators using imported fuel and the relatively Nationally Determined Contribution, “For Solomon high fixed costs of establishing and maintaining Islands…, where climate change threatens the very electricity grids for such small customer bases. Given existence of the people and the nation, adaptation the uniform tariff, reducing the cost of generating is not an option—but rather a matter of survival.” At electricity for the Honiara grid is critical to improving the micro level, risk reduction and adaptation are electricity affordability across the country. The Tina vital to the physical health and safety of people, as River hydro scheme has the potential to reduce the well as to the protection of household, community, tariff to US$0.33 per kWh in 2022, its first year of and environmental assets that are essential to their operation. It would also facilitate a cost-effective livelihood opportunities. At the macro level, risk increase in solar generation capacity. Together with mitigation, preparedness, and financial protection planned conversions of existing diesel outstations are vital to reducing the extent of growth shocks to solar photovoltaic-diesel hybrids (with support from natural disasters and increasing the extent to from the Asian Development Bank (ADB)) and which scarce resources can be used to expand the new hybrid outstations, Tina River is expected to capital stock, rather than constantly being required contribute to a renewables share of 83 percent by to rebuild capital lost as a result of disasters. 2046. SIEA needs to attract back onto the grid large Risk mitigation covers an array of measures customers that have opted off it in recent years (in and institutions, from better coordination and favor of generating their own electricity from diesel) governance, through effective land use planning and due to the high cost of electricity and ensure that it resilient housing and infrastructure, to operational supplies future large customers, to spread the fixed early warning systems and emergency response cost of supply and thus also more affordable prices. plans. 41 | Current Conditions and Constraints Outlook and Opportunities 81. The geographic location and characteristics 83. Solomon Islands has brought climate and of Solomon Islands make it highly prone to natural DRM together in a single policy and institutional hazards. It is among the 20 countries with the highest structure to establish a more effective and economic risk exposure to two or more geological, integrated approach to climate and DRM, but it hydrological and climatic hazards that include has been slow to build the capacity needed in this tropical cyclones, volcanic eruptions, earthquakes, area. The budget for specific DRM activities across tsunamis, landslides, floods, and droughts. Over the government is relatively small, averaging 0.4 percent past 36 years there have been eight major disasters of the consolidated budget over the last five years triggered by natural hazards, resulting in loss of life (unchanged from the five years previously). Small and severe adverse economic impacts. Modelling numbers of staff with limited skills are a significant suggests that due to natural hazards and climate constraint, and attention has tended to be focused change pertaining to earthquakes/tsunamis and more on DRM than disaster risk reduction (DRR). cyclones alone, over the next 50 years Solomon In addition, some staff recruited for placement in Islands is likely to incur annual average direct losses provincial governments to provide more effective equivalent to 3 percent of GDP, has a 50 percent disaster response at the provincial level remain in chance of experiencing an event causing a loss Honiara, reportedly due to lack of office space and exceeding 35 percent of GDP and casualties larger housing in some provincial centers. At the same time, than 1,650 people, and has a 10 percent chance there is a substantial degree of fragmentation in the of incurring a catastrophic event causing a loss climate and DRM portfolio, resulting from numerous exceeding 77 percent of GDP and casualties larger individual projects supported by different donors, than 4,600 people. Key disaster risks related to further eroding the potential for the adoption climate change include drought and flooding from and implementation of a coherent and strategic periods of more extreme rainfall, more intense (but framework. The World Bank’s Community Resilience less frequent) cyclones, and increased impacts of to Climate and Disaster Risk in Solomon Islands storm surges and coastal flooding from sea level Project is geared at assisting the government to take rise. Sea level rise in Solomon Islands is almost three a more coherent and strategic approach to climate times the global average, and has already claimed and DRM and DRR, including early warning systems. five islands. Priority areas include community-level water supply and sanitation, disaster risk and climate adaptation 82. Rural and urban populations are both planning, and evacuation centers, infrastructure, highly vulnerable to disaster risks. A substantial and coastal protection in the most vulnerable share of the rural population lives on or very near communities (for instance, on low-lying islands or to the coast, with livelihoods dependent on nearby other vulnerable human settlements). agricultural land and nearshore fisheries. In urban areas, especially informal settlements, residents are highly vulnerable to flooding and landslide events, 84. While donor support may, in some in addition to cyclones and earthquakes. This is due instances, succeed in increasing the attention in part to the location of informal settlements within of policy makers to the importance of DRM and the city boundaries, which in many cases are on DRR, citizen engagement also has the potential to land deemed unsuitable for development due to it change the policy dynamics in Solomon Islands. being adjacent to rivers and streams or consisting of Given both the rapid rate of urbanization and the steeply sloping terrain. It is also due to inadequate extreme vulnerability of the urban poor to disaster or poorly maintained infrastructure, including events, there is some potential for popular pressure poor or non-existent drainage systems, and road to increase the interest of political elites in DRM and footpath access that become impassable and DRR. This might be particularly true if accurate with heavy rain. Vulnerability is heightened by the information about the causes of disasters—both quality of housing, with an estimated two-thirds of regular events and extreme events like the 2014 housing in informal settlements made of temporary floods—is widely shared, to galvanize commitment or semi-permanent materials—including traditional to addressing the underlying problems. Further loss materials such as are used in rural areas. The of agricultural land in rural areas might also spur vulnerability of the urban poor to natural disasters wider public discontent that could provide more of was starkly illustrated during the April 2014 flash an impetus for efforts to build agricultural resilience floods, triggered by extreme rainfall hitting a steep to climate variability and climate change. However, and small catchment, increased river sedimentation, at their core, climate adaptation and DRM will and developments downstream that impeded river inevitably intersect with land issues: government flow. While early warning is difficult in the event acquisition of land for the relocation of vulnerable of flash floods, the weather alerts that were issued services (including the national referral hospital) did not result in the people in vulnerable areas and infrastructure; rural communities who need evacuating to higher ground. Some 22 people died to negotiate access to alternative places to live, and approximately 675 houses were destroyed, farm, or fish; and urban and peri-urban settlements primarily from the settlements around the Mataniko that are highly exposed to disasters but cannot be River. Housing has since been reconstructed on the relocated in the absence of access to alternative land that was affected by these floods. Aside from land spaces. Climate change is thus likely to expose extreme events, increasingly heavy rainfall is now the weaknesses of current land systems and force a triggering annual, widespread flooding of human reckoning with them much sooner than would have settlements in Solomon Islands. been the case otherwise. | 42 43 | 5. PILLAR 2: ACHIEVING INCLUSIVE AND SUSTAINABLE GROWTH 85. Under this pillar, the SCD focuses on (see Box 5). This SCD builds on that analysis, by challenges and opportunities for inclusive and focusing on the constraints and opportunities for sustainable growth and their implications for inclusive and sustainable growth in each of those macroeconomic stability and risks. The section sectors. Of the sectors identified in that earlier begins by outlining the sectors in which Solomon work, agriculture and fisheries, logging and urban Islands can potentially be globally competitive, services—driven by the public sector—already consistent with its economic geography. It then represent significant shares of the economy analyses the growth potential, inclusiveness, and (as presented earlier in Figure 9) and/or make sustainability of each sector. Following the sector- significant contributions to growth (as shown in specific analysis, it outlines the macro-fiscal Figure 10). The remaining sectors—mining, tourism, challenges Solomon Islands is likely to face over and labor mobility—are yet to be developed to any the medium term, given the current macro-fiscal significant extent (though in the case of mining, position and the outlook for different sectors of it has been in the past). While the job intensity of the economy. these sectors varies, the existing dominance of agriculture and fisheries, the public sector and other 86. As the country context section has laid urban services, and logging in the distribution of out, the sectors in which Solomon Islands can jobs is clear in Figure 30. The potential of different potentially be globally competitive are highly sectors for job creation is particularly significant for constrained by its economic geography. In 2010, poverty reduction, with HIES data demonstrating the World Bank undertook a detailed analysis that households whose head has paid employment of its economic geography and identified the (especially a public sector job) are less likely to be in sectors where there is significant growth potential poverty (Figure 31). BOX 5 SOLOMON ISLANDS GROWTH PROSPECTS: CONSTRAINTS AND POLICY PRIORITIES The World Bank undertook this analysis in 2010 in response to a request from the government to investigate future growth prospects for Solomon Islands. At the time, post-conflict growth had been driven by the rapid expansion of logging (with commercially exploitable stocks then expected to be exhausted by 2014) and large increases in international aid flows (which, with the improving security situation, were then expected to flatten out). The World Bank analyzed the growth experiences of small states that had achieved high levels of growth since 1970 and showed that the bulk of these depended on natural resource-based industries and tourism, with remittances and economic reform in the wake of major economic shocks playing a role in a few growth experiences. Taking into account both the particular economic geography of Solomon Islands and its weak governance with limited capacity for regulatory and economic policy reform, the World Bank identified four key sources of economic growth: a vibrant smallholder agriculture sector, natural resource industries that benefit Solomon Islands, an internationally mobile workforce, and international partnerships that recognize the central, long-term role of aid in supporting public service delivery and providing an added stimulus to the local private sector. In recognition of the fact that growth from the identified sources would not be distributed equally across the country, the World Bank also identified two key enabling requirements: building efficient connections between centers of economic activity and to surrounding populations and facilitating the concentration of population and production in urban centers. These issues are taken up in this SCD under the third pillar on managing uneven development. | 44 Figure 30: Employment by sector and gender Males Agriculture Agriculture Females Public admin., education and health* Public sector Wholesale and retail trade Urban services Fishing Fisheries Manufacturing Fish processing (women) Construction Forestry and logging Forestry Forestry Other services Transport, storage and communications Private household employees Hotels and restaurants Tourism^ Extra territorial organisation Mining and quarrying Mining Financial intermediation Real estate, business services Electricity and water 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Paid employment Source World Bank staff analysis of the 2009 census. Note *Includes direct wage employees as well as established staff; ^Other categories, like transport and trade, are also key to the tourism sector. Figure 31: Employment status of household head by quintile 100% Student Inactive 80% Percentage of household heads Subsistence Producing good for sale/ 60% own business Employee (other) Employee (private sector) 40% Employee (public sector) 20% 0% 1 2 3 4 5 (Lowest) (Higest) Quintile Source World Bank staff analysis of 2012/13 HIES. 45 | 5.1 Agriculture and Fisheries thus result in higher prices, or in selling higher- value products). Men tend to dominate cash crop 87. The agriculture and fisheries sector is production, which typically occurs on the prime the most important sector of the economy for agricultural land. It is estimated that 30 percent of livelihoods. Almost all rural households have a the value added in the copra industry accrues to vegetable garden, and subsistence production for the approximately 40,000 smallholders, while for household consumption is the primary economic cocoa some 20 percent of the value added accrues activity of 53 percent of working-age women and to the 24,000 smallholders and 57 percent to the 42 percent of working-age men in rural areas (and 2,000 processors.72 The only large-scale agriculture a secondary economic activity for an additional is an oil palm plantation on alienated and customary 14 percent of women and 17 percent of men). On land on Guadalcanal.73 The plantation provides some average, 51 percent of rural household income 1,500 jobs, 60 percent of which are held by men, is derived from crops (29 percent), fisheries (12 and there are now 233 out-growers on surrounding percent), and livestock (10 percent). A further 5 customary land. percent is derived from home production activities, some of which (such as weaving mats) are based 89. The ability of the agricultural sector to on agricultural inputs. In urban areas, just under half continue to support the livelihoods of such a large of households have a vegetable garden, and crops, number of people in the near future is subject to fisheries, and livestock contribute 6 percent of urban a number of risks. The availability of land suitable household income.71 The non-logging agriculture for agriculture is very limited, due both to the and fisheries sector now constitutes 20.7 percent of mountainous topography and to the weather— GDP, and its contribution to GDP growth since the with mean rainfall in many areas excessive for most end of the tension has been roughly in line with that, agricultural activities (Bourke et al. 2006). Soil accounting for 20.2 percent of the growth between fertility is reportedly declining due to more intensive 2003 and 2014. The state obtains a fairly limited land use, the impact of deforestation, and in some share of the returns in the sector through taxation, areas also the impact of mining. Critically also, the with only the larger formal enterprises involved in sector is highly vulnerable to the impacts of climate the export of cash crops falling within the tax net. change. Higher temperatures, more intense and The state does, however, obtain significant revenue shorter periods of rainfall, more intense and longer from access fees to the oceanic fishery—now nearly periods of drought, more intense storms (with high 10 percent of domestic revenue (see Box 8). winds, flooding, and coastal erosion), salt water intrusion, and coastal inundation (most agriculture occurs in coastal areas) are all anticipated to reduce Agriculture yields, change established patterns of pests and diseases, and increase the volatility of output.74 88. Consistent with the nature of the land Sea level rise or extended periods of inundation tenure system, most agricultural activity consists are also expected to result in the permanent of smallholder production and the sector is highly loss of agricultural land. The potentially negative inclusive. In rural areas, most households engage in impact on food security and nutrition is a serious food and cash crop production on customary land concern. At the same time, the evidence suggests (see Box 6). They produce a variety of root crops, that agricultural producers in Solomon Islands are vegetables, and fruits for own consumption and for very responsive to price signals, suggesting their sale in domestic markets, livestock (mainly poultry potential receptiveness to adopting higher yielding and pigs), and cash crops for export (primarily copra or more robust varieties and practices. There are now and cocoa, to a limited extent coffee, with nascent also several relatively large commercial agricultural exports of other crops). Typically, smallholders operations, which have adopted innovative ways of engage in some combination of food and cash overcoming key constraints in the sector—including crop production. Women tend to dominate the high internal transport costs, the challenges of production and marketing of food crops and small smallholder land tenure, access to finance, and lack livestock (and, near Honiara, flowers), but occupy of extension services (see Box 7). more limited roles in cash crop production (typically not in tasks regarded as more physically demanding, in the post-harvest practices that add value and 71 All previous statistics in this paragraph are based on World Bank staff analysis of the 2012/13 HIES. The income statistics reflect the (democratic) average of the composition of income across households, excluding imputed rent and the income-equivalent of goods produced for home consumption. 72 Young and Pelomo (2014); Vadnjal and Pelomo (2014). 73 The other large-scale agricultural activity, Russell Islands Plantation Estates Ltd coconut plantations, has been inactive since the tension. The plantation in Central Province could potentially be redeveloped. | 46 BOX 6 LAND AS A FACTOR OF PRODUCTION Both land that is under customary ownership and land that has been alienated serve as factors of production in Solomon Islands. The former is used mainly for subsistence and smallholder agriculture and or is forested. The latter includes urban land, the land used for large-scale agriculture and forest plantations, and the land for the fish cannery. Secure access to customary land for commercial use—as well as for the development of infrastructure—is frequently cited as a major constraint to private sector development in Solomon Islands. The customary landholding system undoubtedly constrains commercial development, but whether it is a binding constraint is less clear. It is evident that some investors are able to negotiate benefit-sharing arrangements that secure the support of local landowning groups, enabling their access to land for commercial purposes. The government has also been able to do this with land for infrastructure (though at times senior male landowner representatives succeed in demanding extraordinary payments for the use of their land or the water from it). It is also evident that the existing system for registering customary land (rather than the fact that land ownership is widely distributed among local landowning groups) poses a number of risks. The trusteeship system risks unscrupulous ‘representatives’ effectively usurping the rights of members of landowning groups, by negotiating the commercial use of land without necessarily consulting or securing the consent of the whole landowning group or sharing the rents with them. This disadvantages women and youth in landowning groups, whose interests are often marginalized, and is risky for investors, whose lease may not be seen as legitimate. The large backlog of land-related legal disputes also raises the risks to landowners and investors. The government is currently investigating alternative models to the existing system, including making landowning groups (rather than ‘representatives’) corporate actors. If this can be done in such a way that it secures the rights of all members of landowning groups, it might improve the equity of and reduce the reservations of landowners over the commercial use of their land. The government is, for instance, interested in aspects of Vanuatu’s approach to dealing with gender issues in title transactions. Just as there are risks with the present system, so there will be with any reforms. Given the complex and contested nature of land ownership and access and that customary landholdings are currently unmapped, systems that define exclusive ownership once-and-for-all may provoke inter- as well as intra-group conflicts along generational and gender lines, as commercialization processes have in the past (Allen 2017). 47 | 90. A number of initiatives are currently the recurrent agriculture budget is scant, and the underway to tackle the challenges facing the state has a limited ability to reach rural populations. sector and enhance its capacity to meet food The UN Food and Agricultural Organization (FAO) and nutrition needs in the face of population is supporting an agriculture survey and financing growth, and climate change should be viewed as pilot agriculture and climate change adaptation a high priority. The agricultural sector is described activities for potential scale-up. There is further as a priority in the NDS, and there is a specific space to supplement or substitute for research and agriculture and livestock sector policy in place. development capacity to improve yields, strengthen However, the ability of the state to provide effective resilience, and account for nutritional needs, and research and extension services, pest and disease there is a complementary need to explore the control, and the like to improve agricultural yields potential of innovative and collaborative modes of (in the face of population pressures) and resilience delivering agricultural support to smallholders— (in the face of climate change) is limited. Basic data including through the private sector, churches, RTC on agricultural production is lacking, core research network, NGOs, or community-based organizations facilities destroyed in the tension were never rebuilt, with a strong presence in rural areas. BOX 7 AGRICULTURAL VALUE ADDING The virgin coconut oil (VCO) industry in Solomon Islands demonstrates a number of market-based solutions to the challenges of economic geography. Operating since 2004, Kokonut Pacific is a social enterprise creating sustainable livelihoods for rural communities. Typically, manual presses are operated by family units, producing organically certified VCO from dried coconut meat supplied from their own or surrounding small-scale coconut farms. Residual coconut meal supplements livestock feed, increasing protein supply, and coconut shells serve as fuel for the drier, mitigating the need to use forest resources. There are now about 60 active operators, each with the capacity to employ 6–8 workers. Unlike the male- dominated copra industry, women account for about half the employment in the VCO industry and are not confined to particular, gender-specific roles. Kokonut Pacific effectively provides agricultural extension services for the industry, with training in VCO production and business skills accompanying the setup of new presses. Through partnership arrangements, financial literacy training and mobile banking are also provided to operators. Differential pricing gives operators the incentive to produce high quality oil, with women-led operations typically more consistent with the quality of supply. The high-value, low-volume VCO minimizes freight costs for shipping to the warehouse in Honiara, and the company reimburses producers for these shipping costs up to a ceiling, to ensure all producers receive the same price for their VCO, facilitating a degree of geographic spread in supply. At present, Malaita and Guadalcanal account for over 80 percent of production, with Isabel dominating the remainder. Most of the VCO is exported to niche markets. While the VCO generates a net return for operators that is significantly higher than traditional copra production, during periods of peak copra prices it is hard for operators to obtain sufficient coconuts. The costs of acquiring and setting up a press are prohibitive for most Solomon Islanders—at around SI$ 150,000 per unit—with access to finance a key constraint. Thus, only a few units have been purchased privately. Some have been established by development partners or provincial governments, but most have been funded by MPs through CDFs. As such, most of the capital equipment of smallholders in the industry was free to the smallholder. (A favorable relationship with the relevant MP or provincial authority would have been a prerequisite for its supply.) | 48 The expanding palm oil industry demonstrates another set of market-based solutions to economic geography and political economy challenges. Guadalcanal Palm Oil Plantation Ltd. (GPPOL), part of the PNG-based New Britain Palm Oil Group owned by Malaysian conglomerate Sime Darby, manages plantations on 6,700 hectares of alienated land and registered customary land, with 233 out-growers on 700 hectares of adjacent non-registered customary land. It purchased the plantations in 2005, redeveloped them after widespread destruction during the tension, and secured Roundtable on Sustainable Palm Oil (RSPO) certification. Consistent with RSPO certification, GPPOL and its associated out-growers cannot, since 2005, develop land that is primary forest or where development affects one or more High Conservation Values. GPPOL has a zero-deforestation policy. Mitigating the extent of soil erosion and land degradation, most of the planted land is flat, not surpassing a 9-degree incline. GPPOL is now the second largest private employer in the country, with about 1,500 workers in its core operation, 40 percent of whom are women working in a variety of roles. GPPOL operates in accordance with a Memorandum of Understanding (MOU) with an association of the landowners who lease their land for its plantations. GPPOL gave this Guadalcanal Plains Resource Development Association (GPRDA) a 20 percent stake in GPPOL—with lease payments, royalties, and other benefits set out in the MOU. These benefits are controlled by a small number of trustees, usually senior men, but the out-grower scheme provides more opportunities for women and youth (Allen 2012). GPPOL appears to have widespread community support, though there have been occasional grievances over its land leases and employment conditions. Given the history of the plantation and the tension, GPPOL agreed with GPRDA to prioritize employing people from the surrounding area, with 60 percent of its workforce Guale and only 2–3 percent Malaitan (compared to over 90 percent before the tension). GPPOL provides amenities and the equivalent of public services in the company area: housing for workers, water and electricity supplies, sports facilities, school buses, market venues and health centers (employing medical staff and procuring its own medical supplies). Outside the company area, GPPOL supports surrounding schools with teaching materials, regularly grades access roads, provides minor infrastructure projects, and allows free access to its health facilities to all members of surrounding communities. Effectively, GPPOL substitutes for the state in the area, as some large-scale mining operations do in other country contexts. GPPOL plans to expand operations to cover a further 7,000 hectares of customary land. This relies on donors financing the road and bridge infrastructure to reach the new production areas. It also relies on GPPOL securing the registration and lease of enough customary land on Guadalcanal Plains—the largest tract of arable land in the country—for the nucleus plantation. Having a higher share of the new area under out-grower production might help to balance the interests of senior men who typically benefit from lease and royalty arrangements with women and youth who have more to gain from out-grower participation. With its out-grower scheme, GPPOL can effectively secure the use of customary land without it being alienated or registered (GPPOL advances credit to an out-grower on the basis of a company form signed by a relevant chief indicating recognition of the out-grower’s tenure (Allen 2012). This process is not seamless, with disputes occasionally arising over the use of customary land by out- growers. In-grower models might also be worth considering, to make the registration and lease of land more attractive to a wider set of members within landowning groups. To address the constraint of access to finance for out-growers, GPPOL provides interest-free loans for out-growers to purchase seedlings, tools, and fertilizers, with repayments deducted from future harvest payments (typically three years from planting). GPPOL also provides extension services to out-growers to maximize yields and ensure compliance with RSPO standards. 49 | Fisheries have seen customary limits on fishing access and effort overwhelmed. The fisheries are also being 91. Coastal fisheries in the Solomon Islands adversely affected by degradation of essential fish is dominated by subsistence activity and—like habitats. Logging-induced sedimentation, sewage agriculture—is highly inclusive. Households fish and solid waste pollution, mangrove clearing, primarily in in-shore areas close to their customary destructive fishing practices, and coral mining lands for subsistence (with similar freshwater degrade the productivity of nearshore fisheries. fisheries activity in rivers and lakes). The main Climate change poses additional threats, including products are finfish and shellfish, either for own changing spawning behavior and fish stock locations consumption or sale in domestic markets. Fish and damage to reef ecosystems from more intense and seafood provide 92 percent of the animal storms, increased sea-surface temperatures and protein intake in the Solomon Islands, 64 percent acidification, and coral bleaching. However, even of which is from subsistence fishing.75 There is also in the absence of climate change-related threats, a modest coastal commercial fishery supplying projected population growth is likely to overwhelm finfish for domestic consumption from small-scale coastal fisheries, leading to resource collapse. As vessels operating in lagoons, reefs, and archipelagic well as the damage to livelihoods, the food fish gap waters, supplying baitfish to National Fisheries is projected to widen over the coming decades. Developments (NFD) for its two pole-and-line vessels operating in archipelagic waters, and 93. For coastal fisheries to become a sustainable supplying bêche-de-mer, trochus, and shark fins for source of food and livelihoods, it is critical that export. In addition, there is a nascent smallholder existing efforts to develop community-based aquaculture industry, primarily seaweed for export resource management (CBRM) be accelerated (see Figure 32). Men dominate the sector (with 90 and complementary measures put in place. Given percent of men participating in some form of fishing historical patterns of localized resource control and activities), tending to do most of the coastal reef the limited capacity and reach of state authority fishing and using diverse methods and equipment. over fisheries, ‘western’ state-based regulatory Women still play a major role however (with 50 approaches to managing coastal fisheries are very percent of women participating in fishing activities) unlikely to work. The Ministry of Fisheries and Marine and are estimated to take half the subsistence Resources Development (MFMRD) is supporting catch—primarily from in-shore areas. They also CBRM for coastal fisheries, as part of a regional collect bêche-de-mer and shellfish to generate initiative of the Melanesian Spearhead Group, with income (including from handicrafts). Women play a technical assistance from the Secretariat of the major role in the local marketing of by-catch from Pacific Community (SPC). To be effective, MFMRD oceanic fishing vessels. There are reports that sex will need to spearhead the provision of support work is sometimes undertaken on these vessels in services—through provincial governments and/or return for fish to sell. non-state actors—to interested local communities and networks of communities to enable them to 92. The ability of coastal fisheries to continue to maximize the value of their resources in accordance support the food needs and livelihoods of Solomon with their needs. This may include analysis of fish Islanders is under imminent threat. While data are stocks status, facilitation of management plans scarce, coastal fisheries are broadly recognized as based on customary rights but at an ecologically- being fully exploited or overexploited, due to the relevant geographic scale, and capacity building high dependence on fish to meet the food needs for local decision making, goal setting, planning, of the rapidly growing population and the demand and enforcement. Given the different roles men from Asian markets for key highly valued species. and women typically play in coastal fisheries These two forces, together with the disconnect activity, it will be critical for approaches to CBRM to between customary management and a ‘western’ be gender inclusive. With some 4,000 coastal state-based regulatory framework and mindset, villages in the Solomon Islands, this will require significant budgetary resources over a long period. Figure 32: Annual fisheries harvest by value (SI$m), 2007 Coastal (subsistence) Coastal (commercial) Freshwater Aquaculture 0 20 40 60 80 100 120 Source World Bank staff analysis of 2012/13 HIES. 75 Govan 2013. | 50 The local plans and access rules that communities access to oceanic fisheries, other sources of protein set (including long-term marine reserves, to help (such as poultry), and aquaculture. Aquaculture rebuild stocks and increase catches in fishing can also generate income if focused on high- zones), will also need to be codified and enforced value nearshore resources such as bêche-de-mer. at the local and provincial level with support from Great care is needed with policies on commercial the MFMRD. As more effective local management nearshore fisheries, to ensure these do not drive helps to restore nearshore fish stocks, food needs over-exploitation and are instead developed within will need to be supplemented through greater local management systems. 51 | BOX 8 SOLOMON ISLANDS’ ARCHIPELAGIC AND OCEANIC FISHERIES Solomon Islands has traded off access to its archipelagic tuna fishery for local jobs in on- shore processing. Licenses for archipelagic fishing are reserved for domestic vessels landing tuna for local processing. In effect, NFD has exclusive access to the archipelagic tuna fishery, with its domestically flagged fleet of five smaller purse seine vessels and two pole-and-line vessels holding virtually all the fishing days (NFD is minority owned by the government, with Tri Marine the majority owner). NFD can thus use less fuel and spend less time travelling to fishing grounds than other operators (including purse seine and pole-and-line vessels) who are restricted to the Exclusive Economic Zone (EEZ) or high seas. NFD does not own any long-line vessels, but it holds 30 of the total 100 long-line licenses available, leasing them to other operators to diversify revenue and attract more raw material for its processing facility. This tuna loining and canning operation at Noro in Western Province (SolTuna) is supplied primarily by NFD’s purse seines (and to a lesser extent by the long-liners it leases licenses to, fishing in the EEZ). SolTuna provides about 1,800 jobs, two-thirds of which are held by women (though women are underrepresented in higher wage, supervisory, and senior jobs). The loss of European Union (EU) preferences with future least developed country-graduation is likely to be problematic for SolTuna, because its exports of cooked loins to the EU are barely profitable. The recent Marine Stewardship Council certification of Solomon Islands’ pole-and-line and purse seine fishery as well as the lifting of the ‘yellow card’ by the EU provide some incentives for sustainable management and may allow for product differentiation along with a modest price premium in that market. Solomon Islands manages access to its oceanic tuna fishery through a regional partnership aimed at maximizing the returns and safeguarding the sustainability of the resource. The Parties to the Nauru Agreement (PNA) operate a Vessel Day Scheme (VDS) which establishes limits on fishing days for purse seine vessels in the EEZs of participating states, underpinning both the price they can get for selling access to their oceanic fisheries and the sustainability of those fisheries. Solomon Islands is also implementing the new longline VDS, primarily to improve the sustainability of the oceanic fishery through the control of fishing effort by long- liners (rather than for revenue purposes, since the price of longline vessel days is likely to remain low relative to purse seine days, largely because long-liners are much less dependent on access to EEZs to ensure their profitability). While the Solomon Islands is a relatively small player in the purse seine industry (targeting skipjack), it is the largest player in the region’s longline industry (targeting albacore, yellowfin, and bigeye) (Figure 33). Solomon Islands is fairly successful at extracting benefits from its oceanic fishery. In 2016, the price it obtained for purse seine vessel days was the highest in the PNA. It could extract even more of the rents from the fishery, however, if it and the other participating states operated transparent, competitive tenders for allocating vessel days, rather than working through bilateral negotiations. The grant of exclusive access to NFD to operate within 30 miles of territorial waters of the Main Group Archipelago provides about 150 jobs for local men, including in senior roles. The attractiveness of Solomon Islands for additional fish processing operations is largely dependent on access to the fishery, with the government potentially able to trade off government revenue from the VDS for more local jobs in on-shore processing. Transparent, competitive processes will be critical if it is to achieve least cost concessions (like discounted vessel day prices) for these jobs. Solomon Islands’ adherence to fishing effort limits under the VDS is regarded as strong, though illegal, unreported, and unregulated fishing could be further reduced if all participating states restricted vessel days to operators in good standing under the Pacific Islands Forum Fisheries Agency’s Vessel Monitoring Scheme. Notwithstanding these efforts, climate change is likely to reduce the tuna stocks in Solomon Islands’ waters over the coming decades, adversely affecting government revenue. The widening food fish gap will likely require redirection of part of the tuna catch from the oceanic fishery to domestic markets. | 52 Figure 33: VDS tuna catch (tonnes, thousands), 2014–15 500 Purse Seine 400 Longline 300 200 100 0 Palau Tokelau Marshall Tuvalu Solomon Nauru FSM PNG Kiribati Islands Islands Source Virdin 2016. 94. Given both how critical agriculture and Guadalcanal, informal alluvial gold mining around fisheries are to livelihoods and how fragile they Gold Ridge, and modest bauxite mining on Rennell. appear to be now, in the face of rapid population But large-scale mechanized mining could be growth and climate change, a high priority should developed in the near term, given Solomon Islands’ be placed on securing the ability of the sector to world-class nickel deposits. The estimated nickel sustain livelihoods. As WDR2008 showed, GDP export values of SI$ 3,700 million per year in the growth generated by agriculture in low-income 2020s are well above the value of log exports in 2016 countries is significantly more effective at reducing of SI$ 2,400 million, and operations are expected to poverty than growth generated by other sectors. create around 1,000 full-time jobs. Whether that will In the absence of effective measures to improve occur—and whether it will occur soon—is not clear, agricultural productivity and resilience and build also making unclear whether mining will replace sustainable coastal fisheries, we are likely to see logging in macroeconomic aggregates before the progressive breakdown of rural livelihood logging declines. The political economy of logging possibilities and the acceleration of migration and mining could be very different, potentially to urban areas. Without the job opportunities or opening opportunities under mining that have not essential services to accommodate the new arrivals, existed under logging. But even with a more positive this would intensify the risk of conflict. There are political economy context, large-scale mining will be some promising government and donor programs inherently risky. in place to support subsistence agriculture and fisheries, particularly the FAO’s pilot adaptation Forestry program in agriculture and the MFMRD’s CBRM program in fisheries. Supporting the implementation 96. The logging industry is a critical component of these kinds of measures on a sufficient scale to of Solomon Islands’ political economy. Native have a significant impact could prove critical to the forests are owned by ascribed timber rights holders, sector. usually—but not necessarily—connected with landowning groups, frequently with chiefly status, 5.2 Extractive Industries and always male. Deals with logging companies are often brokered by local men fluent in written and 95. Extractive industries have an important— spoken English, usually to the exclusion of non- though perilous—place in the macro-economy. elite men and women in landowning groups who As well as constituting 17.1 percent of GDP and may depend on forest areas for fuel, construction contributing 26.5 percent of overall GDP growth materials, and marginal food gardens (see Box 9). since the tension, logging accounts for 60.1 percent There are major asymmetries of power between of exports, and duties on log exports provide 17.0 the local players and the foreign companies, percent of domestically-sourced revenue. Logging and while promises of royalties, in-kind benefits companies are mainly Malaysian, and over 95 (like new buildings), and direct payments to local percent of log exports go to China. The industry leaders make the deal appealing to those making provides perhaps 5,000 jobs, predominantly male.76 it, the share of the rent secured locally is generally Logging is chiefly of native forests, and its rate regarded as very low.77 The deals struck may also is unsustainable—with a sharp decline expected bear little relation to what happens afterwards when within a decade. To date, mining has largely been the logging occurs, with few opportunities for locals limited to the now-closed Gold Ridge gold mine on to do anything about this disparity. Logging usually 76 This is based on the 2009 census, so the number of jobs in the industry is likely to have increased since then. 77 Allen and Porter (2016); Allen (2017). 53 | takes place very quickly, proceeding if logging 97. While the timing is uncertain, logging companies are successful in patronizing local is expected to decline sharply. The last forest power holders for long enough to get the logs out. assessment was undertaken in 2011 and projected Problems underplayed during deal making—such as that under a business-as-usual scenario, log exports intergroup conflict, domestic violence (exacerbated could be maintained at a little over 1.2 million cubic by disputes and royalty-funded drinking), sexual meters until the mid-to-late 2020s—but doing exploitation of women with very limited options, and that would involve logging all remaining primary child trafficking—often turn out to be much bigger commercial forests and all secondary forests, than communities can handle. Power holders within however prematurely. (This is shown as the red line landowning groups and MPs are frequently included (‘Scenario B’) in Figure 34, which includes the one- as directors of local front companies for the loggers, off logging of all primary and current secondary to secure duty exemptions. Analysis by CBSI finds commercial forests (shaded green, ‘Scenario A’) that the determined prices for logs (a system that plus premature logging of all subsequent secondary establishes a regulated price for each species and forests.) Instead, log export volumes have grown grade of log, as means to tackle undervaluation) year-on-year to record levels and have been above 2 are set significantly below global market prices. million cubic meters since 2014. Figure 35 illustrates Loggers and their political allies have significantly the significantly higher forest rents generated weakened state capacity to regulate the industry. since the tension and the corresponding greater Governments attempting to regulate the industry levels of forest depletion. The absence of updated or increase determined values have faced the threat information on forest stocks prevents any certainty of (or actual) stockpiling logs, interrupting the over the timing of the decline, but it is widely generation and distribution of logging rents, with anticipated to be imminent. In addition, the short policies then retracted or governments brought rotations that must now be occurring make it likely down (Allen 2011). that forest productivity will diminish to very low levels in future. Figure 34: Possible scenarios for log exports Figure 35: Forest rents and forest depletion 30 average = 6.4% average = 16.2% 20 10 0 -10 -20 -30 average = 4.1% average = 20.7% -40 2002 2007 2001 2000 2010 1992 1997 2004 2014 2006 2009 2008 2003 2005 2013 2012 2011 1994 1996 1999 1998 1993 1995 Forest rents (% of GDP) Net forest depletion (% of GNI) Source SKM 2012. Source World Bank staff estimates using WDI. Note Figure 34 - Scenario A is a one-off utilization of the primary and current secondary commercial forest area; Scenario B is market driven business-as-usual logging (with premature logging of all secondary forests); Scenario C is later re-entry into recovering forests; and Scenario D is logging on a sustainable rotation. Figure 35 - Forest rents are calculated from round-wood harvest, average prices, and a region-specific rental rate; Net forest depletion is the monetary value of the difference between the rate of timber harvest and the rate of natural growth. 98. The decline of logging is expected to have revenue annually from logging business licenses. significant macroeconomic and political economy In addition, it is likely to destabilize the political ramifications, with considerable environmental economy, as it did with the Asian Financial Crisis in damage done in the meantime. The decline of the the late 1990s. There may also be groups of newly industry will affect growth, government revenues, unemployed men with significant grievances. In and foreign exchange earnings, which may provoke the meantime, logging methods are damaging the fiscal and/or balance of payments crises depending soil and exacerbating soil erosion, with increased on whether alternative sources of growth have been sedimentation of waterways contributing to the developed in the interim. The decline of logging flash flooding of Honiara in 2014 and increased will be very significant for provincial governments, sedimentation of coastal areas damaging in-shore which typically derive a substantial amount of fisheries and environmental assets important to | 54 tourism. Logging is also degrading food gardens, Forestry Association (SFA), which has closed its disadvantaging women in particular. More extreme membership, is only likely to strengthen the hand of weather events from climate change are likely to the industry relative to both the state and landowners. intensify the environmental damage. Historically, SFA has contested determined values and led resistance through log stockpiling (where 99. In considering whether there are ways non-members have continued exports) and put to improve the current trajectory, it is critical to ceilings on payments to landowners (which non- understand the hybrid forms of power operating in members have not been bound by, reportedly the sector. Logging is largely under the control of benefiting landowners). The Ministry of Forestry foreign logging companies and local timber rights and Research, development partners, and NGOs holders, with operations occurring in numerous have attempted to work at the community level relatively small areas for relatively short periods of to promote inclusive decision making over forest time, often quite remotely from urban centers. The resources and build consensus in favor of longer- power of the state in this sectoral context would term returns from sustainable management, but anyway be quite limited, but the extent to which typically logging deals with large short-term returns political elites have been captured by the logging are struck anyway. Some community-managed industry makes it unlikely a concerted effort will be plantations have been established on previously made to increase it even to the extent possible.78 logged land, however, and some of these are now While customs officials expend considerable effort mature—so viable means to harvest and market the assessing duties at the places logging is occurring, timber for the benefit of the communities need to the extent of underreporting (as indicated by the be identified. There are two commercial plantations vast difference between export values recorded in in operation, but both are on large areas of alienated the Solomon Islands and import values recorded by land, so are not necessarily a guide on the viability China noted in the latest Trade Policy Review by the of smaller-scale plantations. If viable, there would be World Trade Organization) and the low determined value in providing support services to communities values indicate an accommodation between the interested in sustainable forest management (as state and the industry.79 Numerous attempts to planned under the FAO Global Environment Facility strengthen the governance of the sector have been project, for instance). There would also be value in unsuccessful (Hughes et al. 2010), and nothing mitigating the worst of the environmental damage suggests that similar attempts in future would fare that logging is likely to continue to do to subsistence any differently. The government’s recent decision to agriculture and fisheries, as well as to tourism assets. restrict logging licenses to members of the Solomon 78 Strictly speaking, logging licenses must be issued by the Ministry of Forestry and Research for logging to occur, with environmental impact assessments undertaken and cleared by the Ministry of Environment, Climate Change and Disaster Management, but in practice these provisions do not amount to real regulatory control. 79 There is some potential to increase the effectiveness of income taxation on individual logging companies if planned information sharing between customs and revenue occurs, but attempts to secure a greater share of the rents through measures affecting the industry as a whole are unlikely to be mounted or succeed if they were. 55 | BOX 9 EXTRACTIVE INDUSTRIES AND GENDER IN SOLOMON ISLANDS While Solomon Islands is frequently described as a patriarchal society, gender relations are subject to substantial regional variation and are continually being contested and renegotiated, as women seek new avenues for empowerment. Global and regional evidence shows that extractive industries (especially when led by foreign investors) can distort gendered power dynamics throughout communities, almost always at the expense of women and girls. To date in Solomon Islands, men have tended to monopolize the benefits of logging and mining development. Decisions about land are typically made by men and negotiations with logging and mining companies are led by men, even in areas where matrilineal systems of customary ownership prevail. As a consequence, rents and royalties are typically paid to men. Employment associated with logging and mining development is also male-dominated and heavily gendered, further skewing the distribution of benefits (internationally, women’s jobs in mining—when they exist—are typically in cleaning and cooking and are much lower paid). Power asymmetries between genders are also affected by access to equipment—and sometimes firearms—for men engaged in extractive industries and in ancillary services like security. Women—on the other hand—tend to bear a disproportionate share of the costs of logging and mining, with flow-on impacts to children and broader communities. Because women have limited input to negotiations over land access, outcomes seldom reflect the concerns and knowledge of women. Land deals rarely reflect women’s land use, including for livelihoods and for child nutrition—with logging and recent mining activities leading to the destruction of women’s food gardens and long-term soil damage. With rents and royalties paid to men, cash is often used to purchase alcohol—fueling domestic violence—rather than to invest in household and child welfare. Land disputes lead to increased conflict and violence within communities, with disproportionate costs borne by women. The influx of outside workers to logging and mining camps can fuel trade in sex with associated negative impacts, including the spread of sexually transmitted diseases and some forms of exploitation, including sex trafficking. There are reports of very young girls and boys trading sex for small amounts of money. In some cases, families see their daughter having a ‘mining baby’ as an economic asset, reflecting perceived obligations of a father to a mother and child, that are often left unmet. Protecting the interests of women during the potential expansion of Solomon Islands’ mining sector will be vital if negative gender outcomes and associated social costs observed in logging are to be mitigated. This may require (a) arrangements for negotiating access that allow women’s voices to be heard, including in the ‘Development Forum’ (see below) provided for in the new mining policy; (b) skills and livelihoods training to ensure women can access benefits from mining development, both within the mining sector and through backward linkages between the mining sector and sectors within which women are already active (see Eftimie, Heller, and Strongman 2009); and (c) attention to ensuring the equitable distribution of benefits within and across communities to reduce risks of contestation, conflict, and violence. | 56 Mining island or province; between the province or island and the central state; and between national parties 100. Solomon Islands holds mineral resources and the foreign investors. Because these contests of significant value, which could form the basis can overlay salient social identities at the local or for mining to become an engine of economic island/provincial level, they have greater potential growth, but the associated macroeconomic, for scaling-up into widespread conflict and violence. political economy, and conflict risks would be Investments in capable public-serving authorities to high. The fundamental basis for prospective nickel manage these contests are critical. This pertains to mining to play a different role in the economy— effective institutions for: consultation and consent and political economy—of Solomon Islands than that incorporate all relevant stakeholders at all extractive industries have to date, is the nature levels of scale, and which are sufficiently dynamic of the operations. If the license is for a wide area to incorporate changing stakeholders over time; and is granted to an operator whose interest is in revenue sharing between local, provincial, and extraction over the long-term with heavy upfront central authorities; the taxation of mining; the investment, rather than in extraction from only the environmental regulation of mining; the sharing richest and most accessible deposits over the short and use of returns to landowning groups, including time with modest investments in mobile equipment, from CSR-type mechanisms; and the investment of the prospects are very different. The latter type returns to provincial and central authorities in human of operation would be akin to the bauxite mining and physical capital across the province and country, currently underway on Rennell—which in itself is to share the benefits of the mining and to diversify not dissimilar to logging—with extraction occurring the asset base of the economy to support wider fairly quickly across shifting tracts of land by economic growth. Other important factors affecting relatively mobile operators who do not invest in the growth and development benefits of large-scale backward linkages, over whom the state can have mining include the management of mining-related very little hold, and whose operations are causing infrastructure development and the cultivation of extreme environmental degradation (removing backward linkages. With the former, it is critical that the island’s only arable land). The former type of mining-related infrastructure be developed so as to operation offers a greater prospect of investors also serve the needs of broader users and thus spur with an interest in maintaining a long-term social broader economic opportunities or provide broader license to operate and over whom the state can social benefits (see Box 21, in Section 6). With have some hold. Under the right conditions, such the latter, it will be critical for state or non-state large-scale, long-life mining projects can contribute actors to partner with mining operators to develop to local development outcomes, not only through suppliers capable of meeting their requirements and corporate social responsibility (CSR) mechanisms, for attention to be paid to gender-inclusive supply but also by improving infrastructure available for chains, to balance more male-dominated jobs in public use and generating linkages to local suppliers the mining itself. While the limited potential for of goods and services, thus creating additional jobs economies of scale in Solomon Islands, with at most and giving a broader section of the community a a small handful of mining operations, will constrain stake in the mining operations.80 Such projects can avenues for backward linkages, there will still be also contribute to macro-fiscal outcomes through opportunities in areas like agricultural and catering foreign exchange earnings and domestic revenue supply, which have the double advantage of also (though the state needs to develop the capacity being transferable to tourism.81 to manage volatile foreign exchange and revenue flows) and to broader economic growth through 102. The experience of mining in Solomon public expenditure on human and physical capital Islands to date does not engender much confidence funded by mining revenues. None of these potential that the state will invest in capable public-serving benefits is guaranteed, however. authorities to manage the contests that large- scale mining will inevitably create.82 In the past, 101. A number of factors will affect whether ministers have intervened to subvert attempts to large-scale mining does actually provide build such institutions, for instance by excluding growth and development benefits in Solomon all the main minerals existing in Solomon Islands Islands, critical among which will be the nature from the coverage of provisions for a special fund and implementation of the mining regulatory for mining royalties, retaining ministerial discretion framework. Global and regional experience to undermine the institution of the Minerals Board, suggests that large-scale mining contributes to interfering in the granting of mining licenses by the intensified contests at multiple levels of scale: within Minerals Board, signing agreements with mining and between surrounding landowning groups; operators to reduce their revenue obligations in between mining and non-mining areas within the breach of existing legislation, and allowing the kind 80 McMahon and Moreira (2014). 81 McMahon and Moreira (2014). 57 | of mismanagement that leads the state to forego to the detriment of the local women and children revenue (as is currently the case with bauxite seeking to earn their livelihoods through informal mining).83 To date, the state has shown little resolve alluvial mining. There is a very real risk in the current to safeguard human and environmental health in difficult fiscal context, a context which the decline areas affected by mining (see Box 10). It has also left of logging is likely to exacerbate, that ministers will mining operators to take on policing and security continue to subvert mining regulation because they functions at mine sites, in the case of Gold Ridge feel a pressing need to secure mining deals. BOX 10 MINING AND THE CHALLENGE OF ENVIRONMENTAL PROTECTION The history of the Gold Ridge mine is replete with examples of just how challenging environmental protection is in relation to mining in Solomon Islands. To date, mining has polluted waterways, degraded food gardens (particularly disadvantaging women), and possibly also damaged inland river fisheries. The potential for these kind of impacts to increase in future is high, due to the rising risk of heavy rains and flooding with climate change. Foremost among the environmental risks attached to the Gold Ridge mine is the tailings dam, which has long been a subject of controversy with downstream users claiming it has adversely affected their health and the productivity of their land. During the heavy rains preceding the flash flooding in 2014, the tailings dam flooded with a serious risk of it breaching the dyke and overflowing. In early 2015, the foreign company that owned the mine sold it—along with legal liability for the tailings dam—to a small set of local ‘landowners’, reportedly for SI$ 100. This occurred despite the fact that the buyer lacked the resources to either invest in the proper management of the tailings dam or compensate those who would be affected if the dyke broke. It also occurred despite opposition from two of the mine’s three landowner associations. These events have starkly illustrated that issuing mining licenses to reputable companies based in jurisdictions that have stringent environmental standards is no guarantee of the conduct of those companies in Solomon Islands. Their conduct is instead determined by the environmental regulatory authority of the state in Solomon Islands, and to date it has fallen short on its responsibility to protect people and the environment from the risk of environmental catastrophe. The government reportedly refused to purchase the Gold Ridge mine itself in 2014 because of its concerns over the liability for the tailings dam, but lacked either the power or the will to take on both the foreign company and the handful of ‘landowners’ involved, to prevent the sale to them. The government has now approved the redevelopment of the mine by the ‘landowners’ (whose corporation holds 10 percent of the shares in Gold Ridge) in partnership with another foreign company (holding 90 percent of the shares). The key concerns to government appear to be jobs, tax revenue, growth, and perhaps also returns to the handful of ‘landowners’ holding an ownership stake. With the Ministry of Mines, Energy and Rural Electrification and Ministry of Environment, Climate Change, Disaster Management and Meteorology continuing to act in a disconnected and rival manner with respect to mining, a situation mining companies are ready to exploit, it does not seem likely that the environmental regulation of the operation will be any stronger in the future than it has been in the past. Given local state allowance of the kind of corporate conduct that has occurred at Gold Ridge, as well as that currently occurring with bauxite mining on Rennell—and indeed across the logging industry—it is important to consider whether foreign states or foreign corporate regulators should take more responsibility for holding these foreign corporations to account for their conduct abroad. Source Allen 2017; Evans 2010. 82 For a detailed discussion of these prospects, see Allen and Porter (2016). 83 While the royalty is fixed by legislation at 3 percent, the means for determining the gross value of bauxite is not stipulated, and the value proposed by the mining companies is disputed as unduly low by MoFT. Instead of resolving this problem, mining operators are proceeding with exports at the disputed low value. | 58 103. While there is good reason for concern • Openness and transparency in all agreements over the likelihood of the state investing in the affecting landowners and communities, with regulatory capacity needed for mining, Cabinet all key agreements and environmental impact approval of the National Mining Policy (NMP) in assessments publicly available; and March 2017 is a positive development. The NMP was informed by the need to manage the types of risks • Companies will no longer be involved in highlighted above, including governance and conflict landowner identification—this will be a risks. The World Bank provided technical assistance government-led activity with participation for the development of the NMP. Its key features are: of provincial authorities and custom bodies. • Clarifying the functions and power of the A number of aspects of the NMP, including the Minerals Board, with an independent Chair, establishment of a ‘Development Forum’ (see Box for more efficient and less discretionary 11), hold the promise of giving provincial-level decision making; authorities—typically excluded in the past—a seat at the table. This is critical, because they tend to • Greater revenue transparency and be the level at which concerns over conflict risks accountability, including the flow of all (between communities that do and do not benefit mineral revenue into one fund with from mining within a province) and environmental multi-stakeholder oversight; costs are projected, and this level overlaps salient island/province identities. Importantly, the NMP • Inclusion of landowners and communities proposes that the benefits of mining must accrue to in the negotiation of land access and all members of mine-affected communities (not just community development benefits—with an landowners), and all communities in the province independent advisory center to enable that where the mine is located (through infrastructure, participation to be effective, through legal for instance), and also provides a default share of advice and financial management support; royalties for provincial governments.84 It is also worthy of attention that the NMP covers seabed • Introduction of a multi-party Community mining—significant exploration has occurred to Development Agreement framework for each date (with around 90 exploration licenses issued) mining project before mining development, and mining applications have even been received, spelling out the rights and obligations; without any regulatory framework in place.85 BOX 11 MINING AND THE ‘DEVELOPMENT FORUM’ MODEL Informed by the tensions that led to the civil war on Bougainville, PNG has established a ‘Development Forum’ for its mining and oil and gas sectors. This opens up the negotiation process over extractive industry developments to a wide range of stakeholders at different scales (local, provincial, national, and global), who have various levels of political and technical capability and draw upon different kinds of legitimacy. It provides a forum for bargaining over the distribution of the costs and benefits of extraction among the different stakeholders. It recognizes that the absence of negotiating rights for all stakeholders systematically excludes particular actors (for instance, landowners and local and provincial governments, from deals struck between national governments and global mining companies) and potentially contributes to grievances, disputes, and violence. The Development Forum provides for negotiations over Memoranda of Agreement that are to be reviewed every five years. To date in PNG, it has led to steadily increasing flows of resources to landowners and local and provincial governments, including secure (rather than discretionary) transfers from the national government. Solomon Islands’ NMP includes provision for a Development Forum, modelled on PNG. This is a promising development, to the extent that it signals a recognition of the risks that mining can pose if actors with a stake in mining development are excluded from decision making and a willingness to adopt new approaches in an attempt to address these risks. The proof, of course, will be in whether such an institution is actually established in Solomon Islands, how it is constituted, and how it and the relevant stakeholders access the resources they need to participate effectively in the Development Forum. As an institution with the potential to enhance contestability in the policy arena pertaining to mining, its success should be treated as an important concern by development partners. Historically, in Solomon Islands, there has been a high level of mining company subsidization of Mines Division-mandated activities, a pattern that would entail particular risks that would need to be managed if repeated here. Source Allen and Porter 2016. 84 Unlike forests, mineral resources are state-owned – but default royalty shares perhaps indicate the relatively weak power of the central state (50 percent) vis-à-vis landowners (40 percent) – with the province at 10 percent. 85 Stanley and Arin (2016) discuss seabed mining in detail, and recommend precautionary management and regional cooperation, given the limited capacity and resources of individual Pacific Islands. 59 | 104. For the NMP to have effect, its main and retail trade, banking, transport, hotels, bars and features need to be translated into legislation, restaurants, real estate, and professional services. regulations, and institutional mandates and to take This makes it a vibrant hub of activity, the national root in actual implementation. The government center for innovation, entrepreneurship and private is planning to revise the Mining Act accordingly, sector operations, as well as the national center but a wider set of legislation covering, among for education and civil society activism. Of the 41 other things, fiscal, environmental, and provincial percent of the working-age population in urban government arrangements forms part of the overall areas whose primary economic activity is paid work, regulatory framework for mining and also needs one-third of them have jobs in the public sector and amendment. Implementation will also require careful two-thirds in the private sector. institutional design and capacity development, for which donor support will be a necessary but not 106. Rapid growth of public sector employment sufficient condition of success. Long-term capacity and spending occurred in both a post-conflict supplementation could well be required in complex context of international intervention and state areas like transfer pricing and audit in mining building and in the context of a logging boom.86 taxation, but could also be valuable to support the That is, while public sector employment and activity state and other local entities in negotiations with was growing as part of efforts to rebuild the state powerful global mining corporations. However, all and improve service delivery, these same processes of the institutions involved in regulation may need were serving as means to redistribute the aid and support over the long term, in particular to ensure logging revenues received by the state. At its peak they can continue to adapt to the changing contests in 2010, development assistance constituted 49 over local, provincial, and central state authority that percent of total revenues and was the equivalent mining will trigger. The key factor opening up the of 31 percent of GDP. That understates the extent possibility for Solomon Islands to have a different to which international engagement contributed future in mining than its past is the different political to the domestic economy, because it excludes economy of large-scale, long-life nickel mining the other spending associated with the presence (in the first instance). That prospect allows for an of the international public sector and its public investor with an interest in maintaining a long-term servants in Solomon Islands. The very high levels of social license to operate, and thereby with potential development assistance have since subsided, to 26 interests in supporting both local community percent of total revenues and 12 percent of GDP in development and forms of public authority capable 2015. It is difficult to discern the economic impact of containing conflict. Such interests could also be of this steep decline. From 2010 to 2013, domestic leveraged to secure mining-related infrastructure revenue increased strongly in real terms and as a developments that provide broader economic share of GDP, enabling the government to offset opportunities and social benefits and support the part of the impact of declining assistance and keep cultivation of backward linkages and local supply expenditure roughly constant in real terms and as chains. This prospect also allows for institutions a share of GDP. From 2014 to 2016, while domestic like the Extractive Industries Transparency Initiative revenue grew in real terms, it did not expand as a (EITI) to have some effect—whereas in the past share of GDP, with the government running down Solomon Islands’ EITI membership has had little its cash reserves while increasing expenditure in impact, with the industry not having an interest in real terms (though it remained roughly constant as cooperating and state support for the initiative not a share of GDP). Central government employment extending much beyond a few officials. While the continued to grow from 11,492 in 2010 to 15,263 risks of large-scale mining are high, the alternatives in 2013, but remained constant thereafter (and over the medium term are extremely limited. thus has been falling slightly as a share of the population). Perhaps because of the limited extent 5.3 Urban Services to which declining aid has translated into declining public expenditure since 2010, the service sector as 105. Honiara’s service economy is one of the a whole has continued to expand over this period. engines of economic growth in Solomon Islands, with the public sector at its core. As a whole, the 107. Both as it captures and redirects rents public sector constitutes 9.5 percent of GDP and from natural resource-based industries, and as it has directly contributed 9.2 percent of overall GDP receives and spends development assistance, the growth since the tension. The central government public sector will continue to underpin the growth provides about 16,000 jobs, SOEs have an estimated of Honiara’s service economy. If aid now stabilizes 2,000 employees, and there are additional jobs in as a share of GDP, as is expected, then in addition provincial governments about which information is to the growth that aid supports through human not readily available. The majority of these jobs are in and physical capital investment, it will remain an Honiara, where the salaries of public sector workers important economic stimulus, especially in Honiara. combine with public procurement—and the salaries Similarly, if the government continues to capture and and procurement of the international public sector— redirect a share of the rents from natural resource- to drive an urban services economy of wholesale based industries—or increase that share, as there is 86 See Haque and Greig (2011) and Haque (2013). | 60 significant scope for it to do—that will also support the 108. The business enabling environment is role of the public sector in underpinning the growth an important factor in the extent to which local of Honiara’s service economy. Natural-resource backward linkages from the public sector can based industries also contribute directly to the develop, as well as in facilitating the broader growth urban service economy, with rents accruing to urban of the urban services economy. As Box 12 explores, residents funding their expenditure and investment many key constraints to private sector development in urban businesses. The greater the extent of reflect underlying governance or broader political local backward linkages that can be developed in economy issues, including corruption, access to the supply chains for public procurement and for land, and law and order or court system weaknesses. the goods and services public servants require, Consultations with the private sector suggest the larger the direct economic impact of public that these problems are most constraining for spending (and thereby of aid and natural resource foreign investors. Whereas local investors have the rents). The same is true of the direct procurement knowledge, networks, and time to negotiate their and employment of the international public sector way around bureaucratic impediments and to work in Solomon Islands.87 The public servants who are through the complexities of accessing land, foreign the immediate beneficiaries of public sector jobs investors—particularly new foreign investors—do are typically already quite privileged, in terms of not. Outside natural resource-based industries, their levels of education (although their earnings the incentives to build the necessary knowledge are shared fairly widely among kin). An important and networks are scarce. For access to finance point, however, is that public service employment is (see Box 13), the roles appear to be reversed, with one of the key sources of formal sector employment local investors typically more disadvantaged. With of women (whereas in aggregate about 30 percent respect to specific impediments affecting informal of formal sector jobs are in the public sector,88 for businesses, little is known—a key knowledge women nearly 50 percent of the formal sector jobs gap for private sector initiatives targeting the they hold are in the public sector). poorest quintiles. 87 On the gender inclusiveness of the aid economy in Solomon Islands, see Haque and Greig (2011). 88 Haque and Packard (2014). 61 | BOX 12 SOLOMON ISLANDS’ BUSINESS ENABLING ENVIRONMENT Changes to business regulations have delivered important gains. Solomon Islands’ ranking in the World Bank Group’s Doing Business indicators has risen over the last decade, to 104 of 190 countries. This places it higher than many other Pacific Islands and on par with the small states average (Figure 36). Foreign direct investment processes, business licensing and tax administration have all improved. Solomon Islands now performs very well on paying taxes and dealing with construction permits and quite well on getting electricity and getting credit. The time taken to register a business has declined from 55 days in 2010 to 9 days in 2017. Commercialization of SOEs and telecommunications liberalization have improved infrastructure services vital to firms. Between 2010 and 2017 the time taken to get electricity declined from 160 days to 53 days, while between 2009 and 2015 mobile network coverage increased from 8 percent to 89 percent and mobile subscriptions increased from 6 percent to 66 percent. However, broader constraints that are often more difficult to address appear binding. In the absence of an established strategy or dialogue mechanism, the government’s approach to private sector issues is perceived as ad hoc. Firms cite corruption as the main constraint to investment (Figure 37). More than 80 percent of firms report having to pay bribes to get things done, compared to 53 percent in the broader East Asia and Pacific region. Cultural networks of reciprocity can constrain the growth of firms, with Solomon Islanders sometimes finding it difficult to accumulate and reinvest capital in the context of strong social pressures to distribute resources. Weaknesses in law and order and the court system are also major problems. More than one-third of firms have experienced losses due to theft and vandalism, while more than 70 percent of firms pay for their own security (compared to less than half of firms in the East Asia and Pacific region). Enforcing contracts is difficult, and around 17 percent of firms identify the court system as a major constraint. There are important mismatches between skills provided through the education system and those sought by firms, often forcing firms to rely on skilled migrant workers from overseas. Women are underrepresented in senior and middle management positions, and most large and medium businesses are owned by men. Businesses report the relatively high burden of taxation falling on compliant businesses, the scarcity of urban land for business expansion, and the high cost of providing housing to professional and technical staff as major constraints. These issues are not easily addressed through further changes to formal rules and systems and reflect underlying governance and political economy constraints. Figure 36: Doing Business index Figure 37: Business Enterprise Survey (1 = most business friendly) - main constraints to business 200 Corruption 180 Tax rates 160 Inadequately educated workforce 140 Access to land Practices of the informal sector 120 Political instability 100 Labor regulations 80 Access to finance 60 Business licenses and permits 40 Tax administration 20 0 5 10 15 20 25 30 0 Kiribati Solomon Islands Pacific Islands Marshall Islands Tonga PNG Timor-Leste Small states Samoa Vanu atu Micronesia Palau Source Doing Business. Source Business Enterprise Survey. | 62 BOX 13 ACCESS TO FINANCE IN SOLOMON ISLANDS Access to finance has improved considerably in recent years, with the rapid spread of mobile banking services and establishment of rural banking schemes providing micro-loans and savings in some provinces. There are now 170,000 mobile banking customers, an expansion that has been particularly important for women, who previously represented only about 40 percent of the banked population (roughly in line with their representation in formal employment). But with commercial bank loans focused on formal sector enterprises and formal sector workers, the urban poor—and sometimes even middle-income earners—are generally precluded from access to credit. Current reforms to the national payment system to increase its financial stability are expected to facilitate access to finance for the bottom quintiles, and the planned shift to positive reporting for the credit bureau should also help, including by bringing a greater range of credit and payment data into the system. Access to financial literacy programs (like those the International Finance Corporation (IFC) supported for workers at SolTuna) have shown significant positive impacts on the ability of relatively poor people to arrange their finances to cover regular expenditures. Financial literacy programs might have wider value too, with informal moneylenders in many workplaces in Honiara—especially the public sector—lending to colleagues at 20–30 percent payable next payday, keeping borrowers in a constant cycle of debt. ‘Savings clubs’ backed by credit institutions are common among the poor, particularly women, but are not always as benign as they seem—with members becoming de facto debt collectors in the event of unpaid debts and debtors vulnerable to having their property raided by the group to avoid penalties falling on the group (Evans 2017). This can result in community division and disharmony. A key issue in access to finance remains the ‘missing middle’—firms that are neither part of the formal sector nor microenterprises for which mobile-banking services might be sufficient. The commercial banks are effectively not interested in these firms, because of the transaction costs of catering to them and the relatively high credit risk involved. So, even when liquidity in the banking sector is extremely high, suitable access to credit is not available to small and medium enterprises (SMEs). Partly as a result of this, commercial bank credit to the private sector is low (at 21.6 percent of GDP in 2015) compared to the average for other Pacific Islands (55.2 percent) and small states (67.2 percent). In addition, over a third of credits in 2015 were personal loans, with loans to the productive sectors (agriculture, fisheries, manufacturing, mining, forestry, and tourism) together accounting for less than a fifth of loans. The credit bureau reforms should support access to finance for SMEs, but financial risk mitigation tools and techniques are also needed to enable banks and finance companies to lend to this sector at a reasonable interest rate and repayment schedule. The IFC Tourism Impediments Diagnostic found that although SMEs theoretically have access to loans from commercial banks, few in the tourism sector can secure them, due to lack of equity or land security and lack of business planning skills. The situation with agriculture seems similar. The World Bank’s Rural Development Program provides a good example of the risk mitigation approach, with grants supplementing SMEs’ equity so they can secure credit from banks (and technical assistance also provided). Solomon Islands is also facing significant impacts from de-risking in the banking sector. Solomon Islands has seen the largest decline in correspondent banking relationships in the Pacific Islands and a resulting increase in concentration of correspondent relationships with the exit of a major regional bank. Several small money-transfer operators have also ceased operation. The loss of competition can lead to reduced banking services and increased costs—with the cost of remittances now higher in Solomon Islands, affecting seasonal workers. 63 | 5.4 Tourism which account for over a fifth of the national room inventory, obtain 80 percent of their turnover from 109. Over the longer term, tourism offers business rather than leisure guests. Outside hotels, Solomon Islands a potentially critical engine of virtually all restaurant business in Honiara is from economic growth. Its potential stems from the locals, expatriates in Honiara, and business visitors. natural, cultural, and historical assets that enable A number of other tourism ventures—including the industry to secure premium prices to cover its some dive operators—also derive their core business relatively high production costs. These assets include from Honiara-based expatriates. While these are its tropical climate, coral reefs, beaches, lagoons important backwards linkages from the urban and surf breaks, its rich and unique cultural heritage, service economy—and international public sector and its many World War II sites—raw tourism assets within it—this is not tapping global tourism market that IFC analysis indicates are regarded highly by opportunities. There were only about 6,100 leisure travel trade representatives in key source markets. visitors to Solomon Islands in 2015—tiny by regional However, the direct contribution of tourism and travel standards (Figure 38), and only marginally above to GDP at present is only about 4 percent (WTTC numbers before the tension. Market surveys indicate 2015), with some 2,000 jobs in tourism businesses the key types of tourism leisure visitors engage in (DFAT 2016). Even these figures overstate the extent are sun and sea, cultural heritage, adventure, and to which Solomon Islands is tapping into its global eco-tourism. In the short term, the rapidly growing market opportunities in tourism, because of the segment of the tourism sector is cruise tourism, with relatively small share of leisure visitors among visitor over 10,000 cruise ship visitors to Solomon Islands arrivals. The six major hotels in Honiara, for instance, in 2016, compared to none just three years earlier. Figure 38: Number of visitor arrivals by air for leisure/vacation purposes, 2015 Vanuatu 63,625 PNG 38,299 Tonga 17,064 Solomon Islands 6,122 Kiribati 65 Kiribati Source National statistics offices. 110. Developing the tourism sector is crucial, restaurants—whereas men dominate diving, fishing, as one of the few economically viable ways for transport, and maintenance operations (DFAT 2016). Solomon Islands to tap into the global economy and Linked to this, there is a need to mitigate the risk because of the industry’s potential for relatively to women of sexual exploitation in the sector. The inclusive growth. A number of neighboring Pacific tourism industry’s potential for backward linkages Islands have demonstrated the potential of tourism is extensive, including—critically—in agriculture and for generating significant numbers of jobs: jobs fisheries. The major hotels in Honiara, for instance, that are generally appealing—including to young have developed significant direct local agricultural people—and that are often in the formal sector. These supply relationships over the last five years. While paid employment opportunities are typically of the potential geographic spread of tourism may disproportionate importance to women (see Box 14). be larger than for mining, tourism assets are by no Tourism’s potential for gender-inclusive employment means evenly distributed and tourism development is already evident in Solomon Islands, with women will further concentrate around assets where estimated to be responsible for 90 percent of the facilitating infrastructure exists—so development is income in the industry, working as micro or small likely to be quite uneven. entrepreneurs or as employees primarily in hotels and | 64 BOX 14 TOURISM AND WOMEN’S ECONOMIC EMPOWERMENT Globally and in many Pacific Islands tourism is a major employer, particularly of women. Globally, the tourism industry provides an estimated 1 of every 11 jobs worldwide. Data from the UN World Tourism Organization shows that women make up a majority of the global tourism workforce, while women-owned businesses are significantly more prevalent in the tourism industry than in the broader economy. In the Pacific Islands that have developed their tourism sectors, women are visible across the industry as both employees and entrepreneurs. Women comprise a significant share of staff in hotels and restaurants, for instance, providing the bulk of staff in areas such as housekeeping. Although women owners or general managers are seldom seen at larger tourism properties, women progressing from entry-level positions to middle management is a standard career trajectory in the Pacific Islands. Tourism development can be an important tool for enhancing the economic position of women, as it provides employment and earning opportunities directly in the communities where women live. In the relatively new but fast-growing cruise ship markets in PNG and Solomon Islands, several women-owned tour operators have already tapped into the emerging opportunities, providing tours and transport to cruise passengers in port. Smaller-scale women entrepreneurs are also participating in the cruise market by retailing local crafts, clothing, and food, as well as providing services such as spa services and hair braiding. To support further expansion of the roles of women entrepreneurs and employees in the tourism industry, a better understanding of gender-specific barriers to advancement is required, along with development of appropriate training and mentorship opportunities and promotion of women role models. 111. For the tourism industry to become an 112. Development partners have the potential engine of growth, the significant constraints that to play a critical role in catalyzing wider tourism have impeded its development to date will need industry development in Solomon Islands. Trying to to be overcome.89 The rapid growth of cruise build the capacity of the state to solve the complex arrivals offers an immediate opportunity for public coordination challenges and marshal the significant and private sector learning on the supply of public resources required for major tourism development amenities, tours, handicrafts, and market produce in in Solomon Islands has not proven successful so far, a relatively simple context. Experience from Vanuatu and there is no reason to expect that to change in suggests microenterprises—particularly women— the near term. It is likely to be more effective for a can be the main beneficiaries, with a complementary capable development partner to take on the weight role for financial literacy and financial products to of coordination challenges and to marshal the smooth consumption from the intermittent income. requisite resources, working in high-level support The relative simplicity of cruise tourism stems from the state. The initiative could target an area from its enclave nature, but this also entails limited of significant tourism potential, such as Western dispersal of yields and considerable risk (with arrivals Province. Public sector entities would need to take highly dependent on destination decisions by cruise responsibility for addressing land access for tourism operators). Developing the tourism industry for businesses and infrastructure developments and air arrivals is a very different proposition, running allowing the necessary reforms of SOEs in the up against complex coordination challenges, transport sector. The lead development partner particularly the supply of domestic transport would need to coordinate overall infrastructure infrastructure and services, properly profiled and and industry development requirements. It would packaged investment opportunities (including bring in other donors and the private sector for secure access to land), and quality accommodation infrastructure development both for tourism and tour operators. Government policy statements businesses and for the broader regional growth support addressing these challenges,90 with many opportunities these could spur and also work donor engagements supporting this work over with the transport and utility SOEs that could use time, but they typically flounder on the ineffective the baseload demand from tourism businesses to machinery of government—a problem that is more establish and expand their services in the area. This pronounced the greater the number of agencies could then provide the foundation for private sector that need to be involved, as with tourism sector investment opportunities in tourism businesses. development. Solving these complex, resource-intensive, and risk- 89 See, in particular, the 2009 IFC Tourism Impediments Diagnostic, which remains relevant today. 90 See, for example, the National Tourism Development Strategy 2015–2019. 65 | laden coordination problems would require long-term provide a critical minimum industry weight to influence commitment—with the industry development likely to the state to invest in the public sector capabilities have a lead time of 8–10 years if successful. If successful, needed to enable the industry to generate future the catalytic effect on the broader tourism industry in rents—particularly by protecting raw tourism assets Solomon Islands could be significant. It might also help to (see Box 15). BOX 15 THREATS TO TOURISM ASSETS Solomon Islands’ primary tourism asset is its natural environment—ocean, beaches, reefs and their marine life, dive sites, and lagoons—but this is under considerable threat. These assets are threatened by more intensive use of agricultural land (with potential fertilizer runoff), over-exploitation of the coastal fishery, logging-induced soil erosion causing sedimentation of coastal areas, pollution of waterways and coastal areas from mining operations, and the mining of coral for construction purposes. Tourism assets are also threatened by the contamination of waterways and the ocean caused by the absence of treatment for sewage or fecal sludge from improved sanitation facilities, open defecation, and solid waste that is pushed into waterways and the ocean or stored on land without proper containment. Climate change threatens tourism assets directly, through rising sea levels and temperatures, coral bleaching, and damage from more extreme weather events like cyclones and storm surges. Were the tourism sector to grow, the additional demands it places on drinking water together with the additional wastewater and solid waste that it would generate (including wastewater from cruise ships, which is difficult to monitor and control), and potentially also the increased overfishing, destruction of corals, destruction of mangrove systems, and extraction of aggregates from coastal areas, could threaten the assets that attract tourists to Solomon Islands, if not effectively regulated. These threats are currently increasing in intensity, due to the continued expansion of logging, relatively rapid population growth, and the effects of climate change. As well as the direct effects of climate change mentioned above, climate change is also threatening tourism assets indirectly, for instance by increasing the frequency of heavy rains that worsen soil erosion from logging and pollution from solid waste, wastewater, and mining sites. However, although the threats to tourism assets are intensifying, the prospects for their protection do not appear to be very strong. Particularly with economic growth rates that are only a little above population growth rates, the state seems unlikely to regulate logging, mining, or agricultural and fishing practices to protect the natural environment. For as long as the tourism industry remains small, it will have relatively little political weight. It might take a fairly extensive push in the development of the sector, to alter this political economy dynamic. | 66 67 | 5.5 Labor Mobility 114. A step-change in migration and remittances 113. Migration and remittances offer a further opportunities for Solomon Islanders would largely avenue for sustained improvements in the well- depend on significant changes in access conditions being of Solomon Islanders. In some Pacific Islands, in the Australian labor market. At present, Solomon remittances are an extremely significant source of Islands has limited opportunities to expand its consumption and investment expenditure,91 but to participation in temporary migration schemes, date this has been less true of Melanesian countries, because the RSE is capped (so Solomon Islanders including Solomon Islands (Figure 39). Solomon would have to displace very competitive workers Islanders have very limited access to labor markets from other Pacific Islands), and even though the abroad and relatively low levels of education, English SWP is now uncapped, employer demand for labor literacy, and work-ready skills to secure skilled work under it is effectively limited by the dominance visas or to be competitive in temporary migration of backpackers in seasonal agricultural work that programs (primarily New Zealand’s Recognized results from the specific visa provisions applying Seasonal Employer (RSE) program and Australia’s to them. Australia is, however, currently piloting a Seasonal Worker Programme (SWP)). In addition, multi-year low/semi-skilled work visa for Pacific Solomon Islands lacked the first mover advantage microstates, which would be an uncapped scheme of some of its neighbors in securing initial supply with no regional location requirement and no sector relationships with employers in the temporary limits. If all Pacific Islands could be covered by a migration programs and continues to lack a large scheme like that, it could be extremely important to diaspora abroad to facilitate these relationships. It Solomon Islands because Solomon Islanders could also had inadequate institutional arrangements for fill roles in the agricultural sector currently filled labor-sending at the outset of the SWP, with the by workers from more competitive Pacific Islands, first intake causing reputational damage among whose skill levels would enable them to shift to employers that has been difficult to overcome. higher-skilled jobs in other economic sectors.92 Solomon Islands has, however, secured modest levels of participation in the RSE (Figure 40), and very high return rates for its workers attest to the suitability of Solomon Islanders for temporary employment opportunities abroad, where adequate recruitment, selection, and pre-departure training systems are in place. Figure 39: Extent of emigration and remittances Figure 40: RSE approvals and SWP participants 3,984 7% 4,000 5.9% 6% 3,000 5% 4% 2,000 2.8% 3% 2% 1,000 683 0.9% 497 1% 0.3% 0.2% 0.2% 114 21 35 0% 1,000 Solomon Islands PNG Vanuatu Solomon Islands PNG Vanuatu Emigrants/Resident Population Remittances/GDP RSE FY15/16 SWP FY14/15 Source Curtain et al. 2016. Source NZ Immigration and Australian Senate. 91 For an overview, see Curtain et al. (2016). 92 Breaking into non-traditional markets (like Korea) is likely to be harder for Solomon Islands than for the Pacific Islands that have been successful in New Zealand and Australia, because the language barriers and cultural differences make success in Korea more challenging than in New Zealand and Australia. | 68 115. To take advantage of any emerging literate populations, so low-skilled workers still opportunities for labor mobility, Solomon satisfy employer requirements once their work- Islands would need to strengthen its institutional ready skills have been built through pre-departure capabilities for labor-sending. These extend from training. The relatively low levels of education and the market abroad back to recruitment at home, English literacy in Solomon Islands mean that the with several successful examples to follow from beneficiaries of temporary migration opportunities other Pacific Islands (see Box 16). In the absence tend to be relatively well-educated people (more of any step-change in access for Solomon Islanders likely to be from upper quintiles). Not only does this abroad, the return from investing in labor-sending blunt the pro-poor impact of temporary migration, it capabilities would likely remain low. If access makes the opportunity cost of temporary migration increases significantly, these investments could relatively high, given the scarcity of the skills and be worthwhile, but it is important to recognize experience frequently held by migrant Solomon the likely limits to the inclusiveness of this labor Islanders. Significant, broad-based improvements mobility. First, most seasonal agricultural workers in education would be necessary to change are men (in the SWP, for instance, only 17 percent this over the long term. In the meantime, the are women), and this is unlikely to change, given strongest justification for investing in labor-sending both the preferences of agricultural employers capabilities would be the service it might provide abroad and the reluctance of families at home to to mitigating social stresses and conflict risks, given allow women to migrate for work. Second, the rapid population growth, the youth bulge, the low Pacific Islands that have successfully channeled absorptive capacity of the economy generally, and temporary migration opportunities to low-skilled the impending displacement of logging workers workers (who are more likely to be from poorer in particular. quintiles) are those with relatively well-educated and BOX 16 INSTITUTIONAL STRENGTHENING FOR LABOUR MOBILITY Lessons learned from the experiences of other Pacific Islands suggest the following priorities for improving institutional capabilities for labor-sending: • Revising the recruitment model—the current model in Solomon Islands, which relies on private recruitment agents, has had mixed results. By outsourcing worker selection and processing to the private sector, the success of this model rests on the effectiveness of the participating agents. While some agents have helped bolster Solomon Islands’ participation in the RSE, others have defrauded potential seasonal workers of earnings. With this model, there is limited quality assurance in place to ensure departing workers meet employer requirements or have been adequately prepared for their work. It has also resulted in minimal representation from disadvantaged groups in the labor market (including women and workers from remote areas). Shifting to a ‘work-ready pool’ model, whereby the Labor Mobility Unit manages the functions currently undertaken by agents, could help address these issues. However, this would require a significant increase in its staffing and capacity, which would take time. In the meantime, more robust agent licensing procedures need to be put in place. • Developing an effective marketing strategy—Solomon Islands has struggled to increase its participation in the SWP largely because of (a) the poor reputation imparted by the first group of participating workers; (b) the lack of an active diaspora to create linkages with employers; and (c) lack of competitiveness against the main Pacific Islands participating in the scheme. A marketing strategy targeted at segments of the agricultural industry could help address these constraints. This is a priority activity for the Labor Mobility Assistance Program that DFAT is supporting. • Establishing effective governance and coordination structures—ultimately, strategic and operational-level commitment and coordination across a number of government agencies will be required to underpin a significant expansion in Solomon Islands’ labor- sending capacity, including the delivery of a reliable program, maintaining recruitment and training standards, solving problems as they arise, and keeping the stakeholders— particularly employers—successfully engaged. 69 | 5.6 Macro-fiscal 118. External balance over the medium-term is similarly conditional on mining. The current Management Challenges account deficit is estimated at 3.8 percent of GDP for 2016, a slight increase over 2015 due to imports 116. The above analysis provides a basis associated with road construction work and weaker for identifying important macroeconomic export growth. The deficit is expected to widen management challenges facing Solomon Islands further to 7.1 percent of GDP in 2017, as energy over the medium term. In the post-conflict period, investments commence and a decline in logging Solomon Islands has depended to a significant is factored in. Foreign reserves are expected to extent on logging and aid for growth, government remain at comfortable levels over the near term, revenue, and foreign exchange. Those sources however. Once logging exports decline significantly, of revenues have underpinned the growth of the external balance will depend on whether minerals urban service economy, through public sector exports have developed to take their place. If not, a employment and expenditure. With the recent substantial current account imbalance or significant decline in aid and the expected decline in logging, depreciation will ensue, with potentially disruptive macroeconomic challenges may become severe. social and poverty impacts—especially in urban While agriculture and fisheries, tourism, and labor areas. It is this risk, of whether mineral exports can mobility all have significant potential to support develop in time to replace logging exports, rather growth, the gains are likely to be only gradual (for than the risk that minerals exports will put pressure agriculture and fisheries) or long term (for tourism on the currency to appreciate, that is foremost at and, depending on access regimes abroad, labor present. As things stand, the IMF regards the basket mobility). None of these sectors can substitute for peg used by the authorities as appropriate and as logging in growth, government revenue, or foreign having an adequate band for adjustment over time. exchange over the medium term. That puts Solomon Accommodative monetary policy to support growth Islands in the unenviable position of depending on is also deemed appropriate, but the weak monetary large-scale mining to manage the transition from transmission mechanism means its effectiveness post-conflict levels of aid and from logging. At is limited. the same time, recent developments in the area of fiscal discipline are concerning, especially for what 119. Revenue declines resulting from they suggest of government capacity to manage declining development assistance are likely to upcoming macroeconomic challenges effectively. be exacerbated by the decline of logging. As we Under a worst-case scenario, macroeconomic have seen, development assistance constituted 26 instability triggered by the loss of logging revenues percent of revenue in 2015, down from its peak of and exports and deteriorating macroeconomic 49 percent in 2010. Domestically sourced revenue management could discourage or delay the mining growth has also tempered, with year-on-year growth investment needed to manage the transition, in 2016 estimated at 3.2 percent (see Box 17). Just leading to a protracted period of contraction and under a third of domestically sourced revenue is unsustainable fiscal and external imbalances. The derived from natural resource extraction, with log provision of significant levels of aid and, as far as production accounting for an estimated 18.0 percent possible, also the extension of technical assistance of domestic revenue and fishing license fees for a in areas vital to macroeconomic management could further 9.9 percent in 2015. Given long lead times for be priorities for development partners at this time. mining development to translate into government revenue (sooner, in the case of royalties, and later, 117. Medium-term growth prospects depend in the case of corporate taxes), depending on its heavily on mining development, with tourism timing the decline of logging may drive a difficult holding significant potential over the longer revenue adjustment. In this context, supporting the term. Growth is expected to remain at around 3 strength of domestic revenue administration will percent per year over the near term, driven by be critical, as may be increased levels of aid during major infrastructure investment in road transport, the transition to protect key public services, as well telecommunications, and energy. Given high as improvements in aid effectiveness to reduce, population growth, however, per capita incomes are wherever possible, costly parallel systems currently expected to increase only marginally. Beyond the fragmenting the state. Volatility will continue to near term, growth prospects are highly uncertain. characterize government revenue due to the heavy The timing of the decline of logging is unknown, reliance of the tax base on natural resources and but when it occurs it will drive substantial economic thus on commodity prices. Longer term, the export contraction if new sources of growth have not been of multiple minerals could provide a partial hedge developed. Given current uncertainties for potential relative to the past experience with only gold investors and the lead time from mining approvals exports, and the development of tourism could be to the growth-creating investment activity, a sharp a critical stabilizing factor. However, for the medium economic contraction between logging and mining term at least, measures to manage the volatility of is possible. If so, the job-intensive urban service minerals revenue will be important, if public service economy would also be likely to contract, since delivery is not to be periodically exposed to cash public sector spending and logging rents are key rationing during revenue downturns. drivers of it. | 70 BOX 17 REVENUE REFORMS Solomon Islands has been remarkably successful in raising domestic revenue in the years following the tension. Between 2003 and 2012, domestic revenue grew by an average annual rate of nearly 16 percent in real terms—increasing from 13.1 percent of GDP in 2003 to 33.6 percent of GDP in 2012 (Figure 41). Since then, domestic revenue has grown more slowly in real terms, with the share of GDP levelling off at about 33 percent of GDP—which is relatively high given Solomon Islands’ GDP per capita (Edwards 2017). As Figure 42 shows, customs revenue, logging duties, and non-tax revenue (dominated by fishing license fees) have all grown significantly in real terms since the end of the tension, but it is inland revenue that has dominated the rising trajectory of domestic revenue until recently. The remarkable performance of inland revenue has been due to joint work by the Inland Revenue Department (IRD) and New Zealand, which has provided the IRD with key staff. Following the tension, New Zealand provided the Commissioner as well as a number of other senior staff in in-line roles, who led the development and reform of the IRD. Since the tension, the IRD has made substantial progress in improving the efficiency of tax administration, increasing filing rates, strengthening assessment capacity, and pursuing payments. Planned moves to share information with customs may enable the IRD to better assess the income tax declarations of logging companies, given information on their log exports. To date, less attention has been paid to debt collection, with New Zealand not having provided in-line staff in that area. The overall success of revenue reforms has likely been enabled by their general alignment with the interests of political elites (in public resources for distribution, particularly through CDFs), contrasting with reforms to control the use of these resources on the expenditure side (Hameiri 2015). Solomon Islands faces a number of major challenges on the domestic revenue front. The burden of taxation falls disproportionately on formal, reasonably large businesses (which pay relatively high rates of taxation) and formal sector wage earners. It is widely accepted that large segments of the urban business community (particularly retailers) avoid tax to a significant degree. However, far more importantly, Solomon Islands has effectively been experiencing a natural resources boom from logging for an extended period, and the state has secured an extremely small share of the rents from it. The steep decline in grants from development partners, which has been occurring since 2011, is putting increased pressure on domestic revenue raising. If the business community that is already tax compliant is targeted for additional revenue, that will significantly impede their operations, while non-compliance proceeds elsewhere. At the same time, New Zealand is winding down its support to the IRD. The Commissioner was localised in 2016, and the remaining in-line staff will complete their assignments in 2017, leaving only the kind of advisory positions provided in other Pacific Islands. This would appear to leave the IRD quite vulnerable, given the pressing fiscal challenges Solomon Islands now faces. Figure 41: Total revenues by source Figure 42: Domestic revenue composition (constant prices) (constant prices) SI$m SI$m % % 1,800 20 3,000 40 1,600 18 35 2,500 1,400 16 SI$ millions 30 14 1,200 SI$ millions 2,000 25 12 1,000 1,500 20 10 800 8 15 600 1,000 6 10 400 4 500 5 200 2 0 0 0 0 2000 2000 2004 2004 2006 2009 2006 2009 2008 2008 2003 2005 2003 2005 2002 2002 2007 2007 2012 2012 2001 2001 2011 2011 2010 2010 2014 2014 2013 2013 2015 2015 Grants Domestic Revenue Non-tax Logging Domestic Revenue Grants as % GDP (RHS) Customs (excl. Inland revenue as % GDP (RHS) logging) Logging as % Domestic Revenues (RHS) Source CBSI, IMF, World Bank staff calculations. Source CBSI, IMF, World Bank staff calculations. 71 | 120. On the expenditure side, the government of GDP is budgeted for 2017. Cash reserves declined will face major challenges in the near term, with from SI$ 880 million at the end of 2015 to SI$179 its capacity to manage these quite mixed. The million at the end of 2016, and the remainder will government is relatively successful at allocating be drawn down to finance the deficit in 2017. The budget resources to what might traditionally be government revised its debt limit from SI$300 regarded as priority areas (as was clear in the earlier million in 2016 to SI$900 million in 2017. This is discussions of health and education), as well as to necessary to accommodate borrowing for the Tina what is clearly a priority to MPs—CDFs. In general, River hydro project, but may also signal a broader with the exception of CDFs, it is less successful at intention to rely increasingly on debt financing spending those resources in accordance with the over the near term. Worryingly, the government is approved allocation. This applies to aggregate also increasingly using the National Provident Fund ministerial ceilings as well as intra- ministerial (NPF) to finance its investment projects. allocations (with virements used extensively to reallocate funds). In part, this reflects weaknesses 122. Given all of these trends, the overall in budget formulation, with approved allocations macro-fiscal outlook is concerning. In the not always matching expenditure requirements. near term, growth will be supported by major However, it mainly reflects a situation in which the infrastructure projects and logging may not approved budget is treated by MPs as a starting point decline significantly. That outlook is subject to for another round of bargaining over the allocation downside risks, particularly from any contraction of resources—with the persistent overspending of in log demand in China or delays in infrastructure the tertiary scholarships budget a clear example. projects. Thereafter, the decline of logging is likely Perhaps partially as a result of the misalignment to significantly reduce growth. At the same time, between approved and actual budgets, but also due risks associated with natural disasters and climate to the inadequacy of approved allocations for some change pose an increasing challenge, potentially of the tasks at hand and the inadequate performance detracting from growth and increasing the costs of of public sector staff and systems, there are resilience building, adaptation, and post-disaster significant challenges with converting expenditure reconstruction. Modelling under the Pacific Risk into effective service delivery. Unsurprisingly, given Assessment and Financing Initiative pilot suggests the clientelist nature of the underlying political annual losses from earthquake/tsunami and cyclone economy, accountability systems for service delivery hazards of 3 percent of GDP, with an estimated are generally ineffective. In this context, it is likely recurrent cost of mitigating climate change effects to be difficult to protect resources for basic service of 0.5 percent of GDP per year. In the last Debt delivery as the fiscal situation tightens—with CDFs Sustainability Assessment, these mitigation costs likely to be prioritized. were assumed to be financed without additional borrowing (that is, displacing other expenditure), 121. Recent trends point toward the erosion of and growth was assumed to remain at 3 percent in the overall fiscal restraint. Allocations to CDFs currently medium and long terms. Under these assumptions, represent around a third of total development Solomon Islands was assessed as being at moderate budget allocations. Between 2014 and 2015, risk of debt distress (with public debt at around 10.2 development budget allocations increased by 78 percent of GDP as at end-2016). This trajectory is percent (from SI$641.1 million to SI$1,141 million), shown as the baseline scenario in Figure 43. Were with the 2016 development budget maintained at a climate change mitigation costs treated as additional similar level. As a consequence of increased overall expenditure or growth assumed to be lower in the spending amid flattening revenues, the government medium or long terms, the baseline would be less has run deficits for two years and budgeted for a favorable. At present, the World Bank is expected to third in 2017. The government had budgeted for a substantially increase its IDA allocations to Solomon deficit of 5.7 percent of GDP in 2015 (funded by Islands (reflected in the ‘IDA scale-up’ scenario). cash reserves), but late passage of the budget and While a combination of lower growth and increased under-implementation of the development budget borrowing might have seen the present value of resulted in a deficit of only 0.3 percent GDP. A debt breach the current debt distress threshold, similarly high deficit target for 2016 is unlikely to enabling Solomon Islands to benefit from IDA on full have been met, but the 2016 deficit is expected to grant terms is less likely with the proposed revisions have been larger than in 2015, given the significant to the debt sustainability framework (shown in the drawdown of cash reserves. A deficit of 2–3 percent ‘Revised threshold’). | 72 Figure 43: Possible trajectories of external debt under alternative debt sustainability thresholds 45 Baseline 40 Historical 35 IDA scale-up 30 Terms of trade shock 25 Current threshold 20 Revised threshold 15 10 5 0 2016 2021 2026 2031 2036 Source World Bank staff analysis, based on the joint IMF/World Bank Debt Sustainability Analysis. 73 | 6. PILLAR 3: MANAGING UNEVEN DEVELOPMENT 123. Under this pillar, the SCD focuses on the 124. Patterns of uneven development affect key issue of uneven development across space the livelihood opportunities and well-being of in Solomon Islands and the measures that can people in different areas of Solomon Islands and mitigate the resultant inequities and risks. Spatial thereby also prospects for poverty reduction and patterns of uneven development can be expected shared prosperity. As Figure 44 shows, poverty to intensify over time. This is partly because, as rates and income levels vary considerably across WDR2009 lays out, concentration is inherent to provinces, as do concentrations of economic economic development, but in Solomon Islands opportunities in logging, mining, manufacturing, these dynamics are reinforced by country-specific tourism, and the urban hub of Honiara. Whatever economic geography. With growth opportunities is done to facilitate economic development largely confined to natural resource-based industries wherever it is viable, by providing a basic level of (including tourism) and to the urban services infrastructure and services across the country (a economy (driven by the public sector), growth will significant challenge in itself, as Pillar 1 showed), inevitably be concentrated around locations of the development will still be highly uneven. As Figure underlying resources and in urban areas. At the 44 also shows, per capita levels of key transfers same time, the lower unit costs of some utilities and also differ considerably and not necessarily always infrastructure in urban areas leads to pronounced in ways that reflect poverty differentials. The next differences in service coverage and quality along section details the patterns of uneven development urban/rural lines. The effects of these differences in Solomon Islands, with a particular emphasis on are—and have always been—mitigated by Solomon urbanization, but also outlining patterns of natural Islanders moving to take advantage of opportunities. resource enclave development. The SCD then However, inequities remain due to limits on mobility focuses on key mechanisms to mitigate the potential posed by inadequate connective infrastructure, by negative consequences of uneven development: land systems, and by island-scale ethnic divisions, (a) connecting people to growth centers to spread and these are a source of fragility. There is, therefore, their benefits; and (b) redistributing benefits from an important role for redistribution systems to leading to lagging areas. ensure that all Solomon Islanders benefit from natural resource-led growth and urbanization. Figure 44: Provincial patterns of poverty, income, major economic opportunities, and key transfers | 74 6.1 Patterns of Uneven Development93 their workers have been and where those workers have lived have proven to be factors of great 125. The main drivers of likely patterns of political as well as socioeconomic importance. uneven development in Solomon Islands over the Given the generally thin population dispersion, these next decade are already clear. The first is likely industries have typically used considerable amounts to be continued rapid urbanization. Among urban of migrant labor. They have also typically been areas, Honiara is the most significant in terms of located in areas surrounded by customary land, so numbers of people (78 percent of the national land to accommodate the migrant workforce has urban population) and political salience and so is usually been part of the industry site. For logging, the focus of this section. The second is likely to be with its typically rapid log extraction, the loggers’ the expansion and contraction of different natural camps have tended to move with the logging, and resource-based growth centers. The biggest changes broader population movements and construction are expected to be the establishment of large-scale have been very limited. For mining and plantations, nickel mining in Isabel and Choiseul and the shifting however, the operations have been longer standing, locations of log extraction in an overall pattern of the workforce more permanent, and family and decline. At the same time, the possible reopening of wider kin have generally come to join the workers Gold Ridge on Guadalcanal, the possible doubling and benefit from the economic opportunities of the area of land used for palm oil production for these growth centers have provided. While this is GPPOL on Guadalcanal, and any potential expansion essentially a process that spreads the benefits of of tourism activity—likely to be centered on Western the growth centers through backward linkages, it Province—would also have spatially concentrated has posed particular political challenges in Solomon social and economic impacts. The way urban and Islands, given that the migrant workforces have other growth centers are managed is obviously tended to be dominated by Malaitans and the arrival important for the well-being of people within of their kin has encroached onto customary land them, but their functionality also affects the extent surrounding the industries on Guadalcanal. While to which they can benefit people beyond them. historically, in the context of internal population Before focusing on urbanization, this section briefly movements, practices of gift exchange that sustained considers the broader internal migration and land webs of social relations enabled people not part of issues that surround the expansion and contraction local descent groups to become members of the of natural resource-based growth centers. community and access customary land for housing and subsistence, the contemporary migration Current Conditions and Constraints connected with natural resource-based growth centers has been very large-scale, and customary 126. As natural resource-based growth centers land systems have not been able to accommodate it have developed in Solomon Islands to date, who successfully (see Box 18). BOX 18 UNEVEN DEVELOPMENT, MIGRATION, CUSTOMARY LAND, AND THE TENSION Uneven development was a key underlying contributor to the tension and remains an important source of risk today. In the years preceding the tension, growth centered on Honiara, Gold Ridge, and the forerunner of GPPOL created a contrast with the lack of development elsewhere on Guadalcanal. The jobs of the primarily Malaitan workers who migrated to these growth centers also created a contrast with the lack of employment opportunities for Guale. The increasing settlement of migrants on customary land to the west of Honiara, around Gold Ridge, and around the forerunner of GPPOL, as well as on alienated land to the east of Honiara, added to the discord. The informal and formal sale of land by senior men, often without the knowledge or approval of their matrilineal landowning groups, was a significant source of intragroup and intergenerational conflict. The younger generation of landowners resented such sales, compounding the grievances that gave rise to the tension. The younger generation of men around Gold Ridge and the forerunner of GPPOL also felt that they and their female kin had been unfairly excluded from benefit-sharing arrangements previously negotiated by senior males. Ultimately these frustrations were visited upon Malaitan settlers on north Guadalcanal. Significantly, the Guale militants who mobilized at the outset of the tension were mainly from the remote and relatively impoverished southern Weather Coast. Around Honiara, evictions began to the west of the city boundaries, where settlements encroached on customary land, with settlements around the mine and palm oil plantation also a focus of evictions. The Malaitan militants who mobilized in response were predominantly from the more densely populated, poorer areas of Northern Malaita. After 2000, many of the Malaitans who took up arms were from Honiara, and the town boundaries became the frontline in the conflict. Source Allen 2017; Evans 2017; Monson 2015. 93 This section draws heavily on Evans (2017) and Allen (2017). 75 | 127. With respect to urban growth centers, 20–29 year-olds (Figure 46). Women and men are Solomon Islands is experiencing a rapid rate of roughly equally represented in this youth bulge. urbanization from what is—by global standards—a There is little empirical evidence on contemporary low base. At the time of the 2009 census, the drivers of urbanization, but frequently cited population of the Honiara urban area—including factors include formal and informal employment, the two adjacent wards in Guadalcanal Province— accessing education (particularly secondary and was some 54 percent larger than in 1999 (an tertiary), utilizing health services (especially the average annual growth rate of 4.4 percent). The national referral hospital), visiting friends and two adjacent wards in Guadalcanal were the fastest relatives, and wanting a way of life removed from growing of any of the urban wards, with the Tandai the toil, monotony, and constraints of rural life. Two ward growing at an average annual rate of 12.8 further factors prompting shorter-term migration percent. Urban growth was also particularly rapid to Honiara are seeking audiences with MPs or their in a number of provincial centers (including Auki in staff to access CDFs (given most MPs live in Honiara, Malaita—the next largest urban centre after Honiara, not their constituencies) and dealing with natural with 5 percent of the urban population, Kirikira in resource development-related issues, particularly Makira, Lata in Temotu, Buala in Isabel, and Taro in logging—in court, with government ministries or Choiseul), leading to an annual average growth rate with private businesses (primarily a male pursuit). for provincial centers of 6.6 percent over this period. Fieldwork research suggests that a significant By 2030, urban areas are expected to contain 30 portion of migration is circular, with people returning percent of the total population, up from 20 percent ‘home’ for periods to undertake labor, visit relatives, in 2009. The majority of the residents of Honiara and collect produce. The 2012/13 HIES shows who were not born there were born in Malaita, that poverty is less common among households with only a very small share born in Guadalcanal— that have recently migrated across provinces, despite it being host to Honiara and the second perhaps indicating that the relatively well-off are most populous province after Malaita (Figure 45).94 better able to take advantage of opportunities for The disproportionate share of young people among interprovincial migration. migrants is evident in a pronounced youth bulge in urban areas relative to rural areas, particularly for 94 The two peri-urban wards in Guadalcanal are not included in Figure 44. In the 2009 census, 39 percent of those enumerated in Guadalcanal | 76 Province but not born there were Malaita-born, with 16 percent Honiara-born. Figure 45: Birthplace of Honiara Figure 46: Urban and rural population residents, 2009 age-structure Other Isabel Western Guadalcanal Honiara Malaita Temotu Makira-Ulawa Percentage of population Rural Urban Source SINSO 2011b. Source World Bank staff estimates based the 2012/13 HIES. 128. The nature of land tenure significantly instances. This land offers reasonably accessible affects patterns of urban development in and housing for lower-middle income residents and around Honiara. New arrivals typically rely on kin also contains a growing number of business for housing and subsistence. These relationships are developments. Its alienation is not necessarily usually two-way, involving exchanges of produce, recognized by Guales. Further expansion would labor, materials, and cash between rural and urban encroach onto customary land. kin. The urban communities that new arrivals join thus tend to depend on the location of their 129. Conditions within informal settlements kin—whether in formal areas or informal settlements vary widely but—relative to formal areas—are in and around Honiara. There is no reliable indicator characterized by a lack of basic amenities. Most of the proportion of Honiara’s residents who reside settlements in and around Honiara can be reached in ‘informal’ settlements, but UN-Habitat (2012) by road, though the poor condition of the roads and suggests a figure of 35 percent which is widely steeply sloping terrain in some areas mean these can quoted. The diversity of informal settlements is be impassible after heavy rains. A limited number considerable: with some established for generations, can only be accessed on foot. Within settlements, others more recent; some with people of different vehicle access is variable. Within the city boundaries, provincial origins, others from the same province; settlement has often outpaced road development and some within the city boundaries, others in by the HCC, with houses established where planned Guadalcanal Province, and some straddling both roads would go. In most settlements in Guadalcanal jurisdictions. Within the city boundaries, informal Province, road and footpath access has been settlements are mainly on public land, much of established and maintained by residents themselves. which had not already been built on because it was Access to utilities in informal settlements is far lower considered unsuitable for development. To the west than in formal areas, impeded by a combination of and south of the city, settlements are mainly on lack of household ability to furnish a title to their customary land, with access generally negotiated occupancy, lack of savings to cover the costs of in some form with those claiming to speak for connection, or lack of a service provider (see Figure the customary owners. To the east, settlements 47). Despite the insecurity of tenure, an estimated are predominantly on land alienated before one-third of housing in informal settlements is independence, some of which is officially in public made of permanent materials (UN-Habitat 2012). hands, some of which is officially in private hands, As seen earlier, except in instances of very serious but all of which appears to be being sold (whether offenses, order and justice are largely matters for officially or unofficially) and subdivided (perhaps non-state authorities which have varying degrees without official approval) in a fairly orderly fashion— of effectiveness. though subject to long-running litigation in some 77 | Figure 47: Variations in access to essential services in and around Honiara 100 Three best connected wards in HCC HCC average 80 Wards adjacent to HCC Percentage of households (%) 60 40 20 0 Access to Access to main Access to private Access to (metered) piped grid electricity flush toilets government drinking water for lighting waste collection Source Source: SINSO 2011b. Note The three best connected wards in HCC are Point Cruz, Kukum, Rove/Lengakiki; the two wards adjacent to HCC are Tandai and Malango. 130. While there is little empirical evidence, informal enterprises appear to operate more as it is generally accepted that unemployment is survival mechanisms than as means of accumulation. a significant problem in Honiara, particularly in Stalls and canteens, for instance, often operate informal settlements and for youth. The 2009 intermittently to raise income for small household census, showing unemployment rates of 15 percent expenses or one-off items. Betel nut, tobacco, and for 20–24 year-olds and 9 percent for 25–29 year- mixed goods sellers tend to remain small, unable to olds (slightly lower for females than males), appears accumulate sufficient capital for expansion. Instead, to significantly understate the problem. Other profits are used for reinvestments in stock, immediate unemployment figures rarely indicate how estimates needs, lending, or kinship obligations that it is have been arrived at (with the exception of a survey in difficult for business owners to resist. Some Solomon White River in 2010 by the World Bank (2014), which Islanders have managed to accumulate enough found that 67 percent of young people reported capital to operate stores in permanent roadside they had no regular source of cash employment– buildings, but there they are in the minority, with this formal or informal–and were seeking work). Informal sector dominated by ethnic Asian entrepreneurs. employment tends to be significant in Honiara (such The incursion of ethnic Asians into sectors typically as: selling betel nut, tobacco, handicrafts, and fruit dominated by indigenous Solomon Islanders can and vegetables; construction, transport, and repair fuel protests (as, for instance, over bus transport work for men; and house cleaning and child care for services in 2015). Public sector employment is far women). The work is often highly episodic, including less common among urban workers in the bottom short-term work paid cash-in-hand or in-kind, as two quintiles than in the top quintile (Figure 48). For well as donor-supported cash-for-work programs. In women, private sector employment is also far less addition, research in informal settlements suggests common in the bottom two quintiles, with domestic that illicit employment is significant. The bulk of work and other unpaid work far more common. Figure 48: Economic activity for working age urban residents – comparison across quintiles 100% Employee 2% 1% 1% 0% 7% 8% 22% Employee (public sector) 16% 80% 17% 34% Employee (private sector/other) 8% 13% 10% 4% Producing good for sale 60% 2% 10% 10% Producing goods for own 10% 14% consumption 3% Unpaid family worker or volunteer 20% 9% 40% 35% Student 1% 40% 11% 24% Homemaker 20% Inactive 38% 15% 14% 11% 0% 7% 1% 2% 0% 1% B40 Q1 B40 Q1 Female Male Source World Bank staff analysis of 2012/13 HIES. Note ‘B40’ refers to the bottom two quintiles across the national population; ‘Q1’ refers to the top quintile across the national population. | 78 131. The social identity and political untenable, these pressure points are likely to engagement of residents of informal settlements intensify. In recent months, for instance, in the face of in Honiara varies widely, with the longevity of the forced evictions of residents of informal settlements settlement a key factor. In the long-established in and around Honiara by private companies, the settlement of White River within the city boundary, national government has evinced a sense of its for instance, residents are likely to consider Honiara responsibility for addressing these specific cases their home and vote in an urban constituency. In the and the broader land tenure issues underlying them. more recent settlement of Burns Creek straddling Media, civil society, and private sector debate in the eastern city boundary, with residents almost Honiara over these events have raised their public exclusively from northern Malaita, young residents salience. Political-level engagement could intersect tend to name the villages in Malaita where their in productive ways with work underway by the fathers were born as their homes. Fieldwork research Ministry of Lands, Housing, and Survey (MLHS), suggests a minority of Burns Creek residents vote development partners, and NGOs in the urban in the East Honiara Urban Constituency (though space, that need broader coordination and political Burns Creek is primarily located in the Northwest leverage to bring about public-interest based Guadalcanal Constituency), while the majority solutions. The MLHS, for instance, is offering FTEs return to northern Malaita to vote (with transport for sale to residents in some informal settlements provided by MPs). Burns Creek is not unusual in the on public land within the city boundaries, but its degree of homogeneity of origin of its residents, approach does not accommodate the public interest with many settlements to the east and south of in security of tenure for residents too poor to afford Honiara similarly homogenous. This indicates that the current scheme. Various development partners urbanization is not necessarily being a melting and NGOs are implementing water, sanitation, pot for provincial identities. Particularly among and energy programs in urban and peri-urban youth with limited or no schooling, but even more areas, whose effectiveness would be improved broadly, many residents of these settlements have if title were no longer a precondition for access. little experience associating with people outside The World Bank’s Rapid Employment Project is their own language groupings during childhood or supporting minor infrastructure development and adolescence, potentially fostering lack of empathy maintenance (including minor roads) in urban and and distrust. peri-urban areas, that link up with HCC and GPG responsibilities in these settlements. And a number 132. Patterns of state authority for informal of donor and NGO projects are also supporting settlements are complex, but are generally greater resilience to natural disasters in urban areas, characterized by lack of interest and inadequate with the vulnerability of informal settlements made resources. Considerable antipathy toward urban starkly evident in the 2014 flooding. At present, migrants is evident in political discourse, with political-level engagement could also intersect the provision of services equated with further with the policy work that is underway, for instance encouragement of migration. Instead, governments by the MLHS on housing and urbanization policies consistently articulate the objective of getting people and through technical assistance by the ADB on a to remain in rural areas. With respect to municipal comprehensive urban development strategy. planning, roads, and waste services, the capacity and resources of HCC and Guadalcanal Provincial 134. The way the functioning of urban and other Government (GPG) are highly constrained. Interest growth centers affects the benefits they provide to in the well-being of residents in informal settlements people beyond them may offer a stronger political can also be limited. The GPG resists responsibility for impetus for addressing their management. Even if service provision in peri-urban areas in Guadalcanal, political incentives do not make the well-being of arguing that the settlers do not choose to exercise residents of Honiara a high priority, the functioning their franchise in Guadalcanal and the GPG lacks the of Honiara as a central hub is critical to the growth capacity and resources to even provide adequate and development of the rest of the country, where services to its ‘own people’ in the rest of the political interests more tend to lie. The greater province (Evans 2017). More broadly, the incentives the efficiency of the economy of Honiara, the of political elites to properly manage urbanization more effective is its demand for goods from rural are undermined by the overrepresentation of rural areas. This makes its roads and ports, for instance, constituencies relative to their population and the of national significance. The better it works as a political engagement of a significant portion of space for private sector development, innovation, urban residents in their ‘home’ province rather than entrepreneurship, and training, the more value it in the urban electorates where they reside. generates—which linkages throughout the country can tap into. In this way, a well-managed central Outlook and Opportunities hub is critical to achieving growth and development in the rest of the network of urban and rural areas. 133. While the incentives of political elites do Also, in parallel, other key urban areas like Auki on not readily align with the proper management Malaita, and Gizo (for tourism) and Noro (for fish) of urbanization, pressure points for change are in Western Province, offer similar network growth emerging. As the current situation becomes more benefits. 79 | 135. Land systems remain a key underlying previously (with typically low assessed values which issue for the functioning of urban and other contribute to low government revenue from this growth centers. State systems for regulating land—in contrast to the high rentals the government the ownership and use of alienated land and for pays to lease the same land back again—see Box 19). bringing customary land into the market have not For customary land, as we saw in Box 6, the MLHS kept pace with social and economic reality. This is is currently investigating how landowning groups evident in the significant portion of urban residents could be registered as corporate bodies to be the with no secure claim over the land and housing they trustees of their own land (rather than vesting this occupy and whose residences are often in unsafe authority in individual trustees who may not act locations, by informal trading and subdivision of in the group’s interest), as well as whether there previously alienated peri-urban land and by informal are suitable alternatives to the current trusteeship means to access customary land. Until there is some system. By increasing the value of land, urbanization reconciliation between formal and informal systems, and natural-resource growth centers intensify those less able to enforce their interests privately the significance of ownership and exclusion will remain more vulnerable to exploitation in the and thus the importance of the equitable treatment transactions that are occurring. Ready public access of all members of landowning groups and those to the titles of alienated land could provide a useful with historical access rights to the land. Otherwise, starting point for grappling with the disparities local-level land disputes are likely to intensify, between ownership on paper and in practice.95 But potentially scaling-up into wider grievances this would threaten the interests of those who have and conflict. benefited from opaque transactions to obtain FTEs BOX 19 PUBLIC LAND MANAGEMENT AND PUBLIC HOUSING Constraints on the management of public land contribute to broader pressure on access to land for housing. Earlier work by the World Bank showed that private firms and individuals hold FTEs over most public land in Honiara. Lack of competitive bidding for the initial grants of these 75-year FTEs, statutory rent reviews that have been skipped, failure to maintain valuation rolls, failure to maintain proper records of current holdings, and weak revenue collection contribute to the poor returns the state receives on this land. The earlier work estimated the value of public land subject to FTEs in Honiara at US$2.1 billion in 2010, with the government collecting just US$2.8 million in rent from public land across the country in 2009. At the same time, the government requires significant land for its offices and facilities, as well as for housing for public servants. A legacy of the colonial era, when the government provided housing in Honiara for expatriate and local public servants recruited from across the country, public servants are entitled to housing (a government house or a rental subsidy/rebate for housing provided by private landlords). While the government collected US$2.8 million in rent in 2009, it was paying about US$100 million in rent to sublease back public land for its offices and facilities and about US$50 million in maintenance on government housing and rental rebates/subsidies to private landlords, who are tenants of public land held under FTEs. Weakly enforced development covenants on land held under FTEs and the absence of capital gains or effective property taxes create distortional incentives that prevent the market from reallocating FTEs to more efficient uses. The inefficient allocation of land in Honiara contributes to its scarcity. The system of public service housing—and its equivalent for professional and technical grades in the private sector—entrenches a significant gulf between those with jobs in the formal sector, whose remuneration includes housing, and those without formal sector jobs who have to secure and pay for housing themselves. Anecdotally, public servants routinely refuse job offers with higher salaries (more than offsetting the rent implicit in their existing remuneration) because of the difficulty of securing housing privately. Source Williams 2011. 95 At present, the process for accessing land titles is not widely known and incurs a fee (which, while relatively small, is prohibitive for many—especially when accessing multiple titles). | 80 136. Particularly if access to essential services services—including labor. They are also vital and infrastructure does not improve, rapid to people’s ability to access public services in urbanization is likely to continue to pose a conflict provincial centers and Honiara. Through transport risk. As we have seen, state authority is generally connections to urban centers, the rural population limited in informal settlements in and around can access domestic markets, and through Honiara Honiara, and essential services and infrastructure are they can connect to an aggregation and onward often equally lacking. In some cases, communities transit point for international markets. In reverse, fill the gaps themselves or are assisted to do so by connections from Honiara provide imported and donor or NGO projects; in some cases, the gaps locally manufactured supplies throughout the remain unfilled. Political sentiments tend to vary by country, as well as an inward transit point for tourists settlement (particularly between longer-standing to Gizo, Munda, and other parts of the archipelago. and more recent settlements), but fieldwork Robust transport infrastructure is critical to DRM, research suggests that it is not unusual for residents both evacuation and response. to have a thorough contempt for ‘the government’ (typically conceived in terms of Honiara-based Current Conditions and Constraints political elites), as incompetent, apathetic, dishonest or corrupt.96 Bleak expectations of the future are 139. Maritime transport is the primary also common, as expressed in the phrase ‘future blo mode of transport for people and goods, with Solo no bright’ (‘the future of Solomon Islands isn’t interisland shipping connecting various points bright’). Among young men particularly, it is not in the archipelago to Honiara, and local boats uncommon to find acceptance of resort to violence providing important links between villages and as an appropriate response to the current practice those connection points. Interisland services vary in of politics—with ‘no kaen care’ (‘nothing to lose’) a frequency, from almost daily between Honiara and familiar refrain. There is little sense of inclusion in Noro (where SolTuna is), to monthly for Temotu’s a broader nation-building process. If contests over outer islands. With initial assistance from the ADB, scarce land, housing, amenities, and jobs intensify Solomon Islands established a Franchise Shipping with continued urban growth, rather than being Scheme (FSS) to subsidize regular scheduled relieved by better urban management, the urban services on a designated set of routes assessed as protests that have occurred periodically since the being commercially unviable (replacing previous end of the tension are likely to continue to give ad hoc charter services).98 The FSS is based on a expression to deprivation, perceived injustice, and minimum-subsidy tender usually for the provision grievance in the future. of monthly services, and the routes essentially cover places with small markets (often in remote 6.2 Connectivity destinations, but including the Weather Coast of Guadalcanal). The variation in frequencies of 137. A key way to address uneven development interisland services provides an indication of how is to connect people and their products to urban a major industry like SolTuna can facilitate wider and other centers of growth to the greatest extent growth opportunities via the connectivity that the possible. This is important for two reasons. First, it industry serves as a baseload customer for. People increases economic growth itself, since the backward in the vicinity of Noro can establish supply links linkages increase the domestic value added with Honiara for perishable goods that would not generated by the growth center. Second, it mitigates be possible for areas with only monthly services. the exclusion engendered by uneven development, For FSS routes, freight is dominated by the supply by enabling a larger set of people to benefit from of household goods from Honiara, and what return the growth center—whether by travelling there for freight there is consists mainly of non-perishable labor opportunities or by marketing their goods copra and cocoa. The monthly journeys are also the in the growth center. In so doing, it gives a larger primary means for delivering government supplies and more widely distributed set of people a stake (such as medical supplies) to these remote locations. in the growth center, helping to mitigate perceived inequities that might fuel grievances. This section 140. Besides the issue of frequency, there begins with transport, outlining current conditions are a number of other ways the current state of and constraints in maritime, road, and air transport, domestic maritime transport constrains growth, and then setting out the outlook and opportunities inclusiveness, and sustainability. (Key international for improved transport connectivity. The section maritime connectivity issues are covered in Box then takes the same approach to the area of 20.) The competitiveness of the domestic industry communications. appears limited. Under the FSS, for instance, it has not been unusual for there to be few or even no Transport97 bids, even though the revenues earned by winning operators have been significantly above their 138. Transport connections enable Solomon tendered revenues and their costs significantly Islanders to link to markets for their goods and below tendered costs (so the subsidy paid has been 96 Evans (2017). 97 This section draws heavily on Adhar (2017) and Weisskopf and Raj (2017). 98 The vessels must be certified by the Solomon Islands Maritime Safety Authority and the operators have to take out insurance on their vessels, cargo, crew, and passengers. 81 | well in excess of what is required). Competitiveness disasters, given that a third of the infrastructure may not be helped by the very uneven playing field owned by the Ministry of Infrastructure Development that provincial government shipping operations (MID) for which data are available requires heavy and—increasingly—constituency shipping grants engineering or machinery work to rehabilitate or create (with MPs providing boats for shipping reconstruct.99 The aging fleet also poses safety operations, whose capital is thus free, whereas concerns and the accident rate is high. FSS routes purely commercial operators have to cover the do provide a degree of gender inclusiveness not costs of their capital). Provincial divisions further guaranteed more generally, both in the choice of constrain competitiveness: in some provinces, only routes (accessing health and education facilities and operators from that province would attempt to markets) and in vessel facilities (cranes for loading provide shipping services there. A significant portion and unloading goods and designated male and of maritime infrastructure must be vulnerable to female toilets). damage from extreme weather events and natural BOX 20 INTERNATIONAL MARITIME CONNECTIVITY Honiara is Solomon Islands’ main seaport gateway, accounting for approximately 90 percent of all freight movements (excluding logging) and fish transshipment. Noro, the other international port, almost exclusively serves NFD’s fishing and processing operations. By regional standards, the port at Honiara is expensive and inefficient (see Table 10). Before 2015, container ship arrivals were steadily increasing as international shipping lines began to centralize transshipment for other Pacific ports in Honiara, perceiving it as inexpensive. This trend reversed from 2015, when there was a major revision to the structure of fees and charges in Honiara, including some significant increases. Low quayside efficiency and delays in vessel clearance were also cited as disincentives. The existence of only a single berth handling one vessel at a time, continued breakdowns of heavy freight handling stevedore equipment due to lack of preventive maintenance, lack of container terminal management systems, limited yard space for storage and handling, and industrial disputes all contributed to poor productivity. Though it did significantly increase port tariffs, Solomon Islands Ports Authority is implementing a series of reforms to improve the productivity of the port—with vessel turnaround times down from 40 to 15 hours, reducing costs to users. These reforms include new equipment and operating systems to increase quayside efficiency and truck turnaround time for the delivery and receipt of containers and expanded hours of operation (with a planned extension to operating at night). A donor-financed second international berth has now been completed. For domestic services, the port road has been upgraded for safety and security and is to have 24-hour lighting. The second berth, perhaps in conjunction with land reclamation, should extend the life of the port in its present location by about 25 years—thereafter, it is expected to need relocation in whole or in part to service projected demand. Table 10: Comparison of regional port charges Standard Vessel Comparison Port TEU Handling Rates Per Hour (US$) Honiara, Solomon Islands 17,266 6 Lae, PNG 10,472 11 Lautoka, Fiji 10,157 12 Nuku’alofa, Tonga 9,278 12 Port Vila, Vanuatu 5,582 10 Apia, Samoa 5,050 12 Average (excluding Honiara) 8,108 11 Source Adhar 2017, citing Consultant Report on Regional Ports Pricing and Productivity Comparative Study, ADB TA No. 8378 REG: Private Sector Development Initiative Phase III, 2016. 99 This does not account for the state of the numerous unimproved anchorages around the country. | 82 141. Though not expansive, the roads network (due to surface friction, lack of navigation aids, and plays a critical role in linking people to maritime flooding) or by disputes between landowners and transport points on the coast, to nearby urban the government (with the majority of operational centers, and to airports. Vehicle ownership is very domestic airports on leased land, rather than rare in rural areas—in contrast to ownership of government owned). The state-owned Solomon boats or canoes, at 6 percent of households—and Airlines is loss making. The community service most people walk to schools and health clinics. obligation CSO it receives may not be adequate, However, roads and vehicles are critical for the and increased competition on its international movement of freight to and from the coast. In global routes has squeezed its margins from that arm of terms, Solomon Islands’ road network of 1,463 km its business. Domestic airports are also frequently is extremely small relative to the size of the land loss-making, with low scheduled traffic volumes area, but it is not so small relative to the size of making them commercially unviable.101 There the population. An estimated 82 percent of the remain serious safety and security oversight issues population are within reach of the road network (77 in the air transport sector. percent of the rural population and all of Honiara). While the existing network is vital for connectivity, Outlook and Opportunities there are some key gaps and weaknesses. Key gaps include the limited connectivity of Honiara with 143. While the government is paying increased large parts of Guadalcanal (terrain, cost, and land attention to the maintenance of existing access are significant constraints) and the limited infrastructure and to criteria-based prioritization road network of Honiara itself which is now grossly of new investments, the resources available are inadequate for the traffic volumes. Key weaknesses very small relative to the extent of connectivity include the quality of the road network. Only challenges. The National Transport Plan 2017-2036 12 percent of it is sealed, nearly all of which is in (NTP), prepared with ADB assistance, prioritizes maintainable condition (though it is not necessarily maintenance of infrastructure assessed as well maintained). The remaining roads are mostly of maintainable (rather than in need of reconstruction). coronous material, with 56 percent in maintainable New projects are prioritized according to clear condition (about a quarter of which are not usable criteria set out in the NTP. Funding for maintenance after heavy rain), and the rest in poor condition and construction work comes through the National or impassable.100 Thus, the quality of the network Transport Fund (NTF). Donor contributions to it are seriously constrains the connectivity it ostensibly conditional on government contributions, NTF funds provides. Public transport is available in and around are unable to be reallocated back to the general Honiara, provided by privately owned minibuses budget, and expenditures are aligned with the NTP and taxis. In rural areas, it takes the form of light and overseen by a board that includes a donor trucks carrying goods and passengers. As with representative. Effectively, this insulates transport maritime transport, accident rates are a concern for infrastructure maintenance and construction from road transport. general budget pressures and from intervention by the executive. Responsibility for funding the FSS has 142. At present, air transport plays a fairly now shifted from ADB financing to the government, small role in domestic connectivity, with its cost with the NTP specifying that 3 percent of total prohibitive for most Solomon Islanders. The public expenditure should go to shipping services. domestic network is centered on Honiara, which To make the FSS affordable while adding new routes accounts for 55 percent of departing passengers to it, existing subsidies need to be scaled back to the (including domestic and international), with Western minimum necessary for commercial viability. Five Province dominating the spokes, at 27 percent of of the existing eight FSS routes are now assessed departing passengers. Service frequencies vary as being commercially viable, rendering subsidies from daily to weekly. A return fare to Honiara costs unnecessary—and indicating the success of the about 7–10 percent of annual household income scheme in producing viable transport routes by in the relevant province. The propensity to fly is subsidizing their establishment for a lengthy period only 0.2 trips per person per year, in contrast to while sufficient demand is built to sustain them. maritime transport, where the propensity is about 0.8 for interisland services alone. Airfares are highly 144. Significantly increased levels of donor correlated with distance (whereas in most contexts financing targeted to infrastructure around they are demand driven). Compared to Vanuatu, growth centers is likely to be necessary to fares in Solomon Islands are 25–80 percent higher support economic growth and mitigate the risks on similar distance routes, with many around 50 of uneven development. At present, rehabilitating percent higher. Possible reasons for this include or reconstructing all existing maritime, road, and the non-viability of some of the domestic routes, air transport infrastructure to usable standards— aircraft types accommodated by runways being let alone relocating and upgrading it for climate inappropriate to business needs, and disruptions resilience—is unaffordable (it being a stretch to cover to airfield availability caused by weather conditions the maintenance of maintainable infrastructure and 100 Similarly, only 56 percent of bridges are in maintainable condition. 101 Previous analysis has suggested room for increased airport fees and charges on international services, as well as for greater efficiency of airport operations. There also appear to be some financial irregularities in the sector. 83 | a handful of new projects). This indicates that it is Waghina Island and a large scale if nickel mining not possible to provide connective infrastructure for goes ahead, development partners should place a all communities in Solomon Islands at this juncture. high priority on the provision of infrastructure and Prioritization is critical, and though this has been services to help all proximate communities connect achieved to some extent in the NTP, its inclusion to mining growth, where these are not sufficiently of a major infrastructure project in each province covered by mining companies, provincial authorities, possibly suggests the state is not robust enough to or the national government (Box 21). This is also still concentrate resources around strategic priorities. needed for Honiara, with respect to the parts of On a small scale for the approved bauxite mine on Guadalcanal Province that remain unconnected to it. BOX 21 INFRASTRUCTURE PPPs FOR INDUSTRY DEVELOPMENT New economic opportunities in mining, tourism, agriculture, and fisheries are likely to be in areas of the country where basic infrastructure needs to be established or significantly upgraded to support industry needs. This applies to essential services like water, sanitation, waste, and energy and to connective infrastructure. Some form of public-private partnership (PPP) is likely to be required for these developments to occur. If the government leaves it to industries to develop utilities and infrastructure at their own cost, the chances of the industries developing will be much reduced, and where they are developed the broader economic benefits of the utilities and infrastructure are likely to be lower, because they may cater only to industry needs. Government and SOEs, however, are unlikely to have the resources needed themselves. PPP approaches have the potential to support the establishment and operation of utilities and infrastructure needed for specific industry and broader economic development, but they entail considerable risks. Done well, PPPs could support utilities and infrastructure that meet the specific requirements of the industries concerned as well as the broader needs of the surrounding region (for instance, a new power grid that uses a new fish processing plant as the baseload customer while it extends services to the surrounding population; road systems to link surrounding populations to mine and port developments, not just to link the mine to the port). Done well, PPPs also provide an appropriate distribution of costs and risks between the public and private partners. But PPP instruments are complex and the public and private partners negotiating them in this context are likely to have very uneven bargaining power and technical capabilities. Moreover, the underlying political economy context would suggest a significant risk of the public interest (including that of future tax payers) not being well represented by the state in negotiations. At present, there are no guiding policy principles, legislative or regulatory framework for the development and management of PPPs, and there is no unit in government tasked with developing and managing them. If the need to develop major PPPs is only occasional, it may not be cost-effective for the state to build and maintain the necessary capacity in-house. Development partners may be able to play an important role helping the state supplement its capacity to negotiate and manage PPPs in the public interest, particularly for large industry and infrastructure developments. The costs of getting PPPs wrong—especially of foregoing the broader growth and employment benefits that could be obtained from utility and infrastructure developments— are high. Good analytical work on core characteristics of good PPPs and common pitfalls of bad PPPs, particularly in contexts of thin public sector capacity and significant power asymmetries, would be a valuable basis for a dialogue with political elites on how much more they, the government, and the people could obtain from industry developments if PPPs are done well. This may also open avenues for development partners to supplement the capacity of the state on PPPs for large industry and infrastructure projects. | 84 145. While priority needs to be placed on Communications infrastructure connections around emerging growth centers to spread the benefits of uneven 147. Information and communication technology development, the government is preoccupied (ICT) also supports Solomon Islanders to connect with trying to make development occur more to centers of growth and centers of service evenly across the country. A priority initiative of delivery. Government-citizen and government- the current government is the development of business engagements are typically time consuming, special economic zones (SEZs) in the provinces, requiring in-person visits to government offices in in an attempt to promote industry and create provincial centers or Honiara and lengthy paper- jobs all around the country and dissuade people based processes. Improved ICT access, including in from migrating to Honiara. These proposed SEZs rural areas where the majority of households now could serve as a means to overcome land access have mobile phones, offers prospects for improving problems, with the government planning to secure public service delivery and accountability and land for the sites. However, it is not clear how the enabling communities to engage more effectively government will afford the major investment or with government. Critically, disaster-resilient ICT manage the coordination challenges of establishing infrastructure is vital to effective DRM across the essential services and connective infrastructure archipelago. for SEZs in each province. Nor is it clear what the returns to such investment would be, if land, utilities, Current Conditions and Constraints and infrastructure are not the binding constraints to industry development in the locations where 148. Over the last decade, the government the SEZs are established. Greater returns could has made major reforms to the ICT sector, with be obtained from focusing these efforts on areas significant results. From 2008 onwards, it enacted where there is a clear source of growth (such as legislation supporting liberalization and competition from natural resources or tourism). The government in the ICT sector and established an independent also appears to see tax concessions as an essential regulator. New service providers entered the market element of the SEZs, opening up considerable risks from 2010, with considerable reductions in prices, of hollowing out the tax basis without any evidence improvements in services, and increases in access that taxation is the binding constraint on private as a result. By 2015, the mobile network covered 89 sector development in the provinces. percent of the population, a remarkable achievement given Solomon Islands’ economic geography. The 146. Air transport has a particularly important main ICT connectivity challenges now are to reach role to play in facilitating the expansion of the the remaining unserved populations, for whom tourism industry. New Zealand is supporting some form of universal access program may be upgrades to the domestic airports that the required, and to reduce the remaining barriers to government owns to provide all-weather runways, more widespread Internet uptake, primarily limited which should enable Solomon Airlines to run the bandwidth and high cost. At present, access to data more efficient Dash 8 aircraft on these routes and services is very low—limitations that most affect for the services to be more reliable. At the same those in more remote areas. As well as constraining time, a new, experienced Chief Executive Officer public service delivery (see Box 22), lack of access has been recruited to Solomon Airlines, with a view to affordable broadband Internet constrains the to improving the management and operations of expansion and deepening of banking services in the the airline. Internationally, Solomon Islands already country and potentially also the exploitation of new has reasonable connectivity, with daily flights to e-commerce opportunities. Brisbane and near daily flights to Nadi, at prices that are comparable with other tourist destinations in the region. This provides a good foundation for tourism development. If the coordination challenges of developing significant new tourism facilities and products in an area with high potential—like Western Province—can be addressed, such an initiative could combine with improved domestic air connectivity to transform tourism into a driver of growth in Solomon Islands in the long term. 85 | | 86 BOX 22 ICT AND PUBLIC SERVICE DELIVERY Given the challenges of providing access to basic public services across Solomon Islands, ICT-enabled service delivery could potentially be very significant. While the coverage of the voice network now extends to most areas of Solomon Islands, access to data services is still very low—limitations most affecting rural areas. Affordable broadband Internet could provide a platform for the development and use of ICT applications in public service delivery. Apart from websites enabling government entities to convey policy information to citizens and for citizens to engage with government services and processes remotely, there is considerable potential for ICT-based applications to mitigate some of the particular challenges of state reach and service quality in Solomon Islands. For instance, applications providing curriculum content, teaching material, and even lesson plans might help support better quality basic education than would be possible by relying on progressive improvements in the qualification base of the teaching establishment alone. Applications guiding a standard package preventative health checks and referral processes might strengthen the quality of primary care in rural areas, where fully qualified nurses may not be available. ICT-based applications might also prove useful among measures to improve the accountability of CDFs, with some MPs already using social media to communicate with constituents about how they have spent CDFs, for instance. Outlook and Opportunities dependent economies (Gill et al. 2009). A share of returns from natural resource-based industries 149. Solomon Islands is currently in the process needs to be secured through taxation and used to of securing an international submarine cable, to invest in a healthier and more skilled workforce and increase the quality of Internet services. The cost of in physical infrastructure nationwide. This enables financing the cable will be critical to its development a higher level of public services and infrastructure impact. The lower the financing cost, the better for the whole population, improving their livelihood the business model—enabling the cable owner to opportunities and facilitating the development of offer lower wholesale bandwidth pricing into the productive activity in all the sectors and locations market. If capital costs and financing mechanisms where it may be viable, given these higher levels of are expensive, however, wholesale prices will have to human and physical capital. This is, in effect, a way be high, which will cascade down to the end users, to diversify the asset base of the economy—with suppressing demand and curtailing its impact. some of the returns from exploiting natural assets Also critical to the impact of the cable will be the funding the accumulation of human and physical strength and effectiveness of regulation, particularly assets, which can in turn spur the development of with respect to open access and transparent, non- other industries. discriminatory pricing. Currently, the independent regulator has the capacity to develop and enforce 151. The government in Solomon Islands does such regulations. Widespread access to broadband this to an extent, through its taxation of natural Internet is not without risks, of course, if people resource-based industries and spending on human more readily see relative deprivations and if and physical capital. Around 47 percent of public their aspirations are raised. These risks underline expenditure is on health and education and the the importance of the effective mitigation and development budget makes up about 18 percent management of uneven development. of total expenditure. The government may not be securing a sufficient share of returns from extractive industries, and the quality of its spending may not 6.3 Other Systems for Managing be as high as it could be (particularly with a third of Uneven Development, Volatility, the development budget going to CDFs), so it could and Shocks be achieving significant greater levels of human and physical capital than it is for the same level of natural 150. Alongside measures to connect people resource extraction. However, the redistribution and their products to urban and other centers process is occurring to some extent. In addition of growth to increase and spread the benefits to across-the-board investments in human and of uneven development, there is an important physical capital, the government also has specific role for taxation and spending mechanisms that systems for redistribution on a geographic basis— redistribute the gains from leading to lagging areas. through the system of provincial governments and As well as being a key lesson from WDR2009, this is the more recent system of CDFs—which the next also clear from the experience of natural resource- section discusses. 87 | Horizontal Systems for Redistribution residual once central government spending needs have been accounted for, rather than reflecting 152. While not its primary function, the provincial the costs of provincial service obligations (Figure government system has served, in part, as a means 49). In some cases, this leaves a shell of public to redistribute public resources on a geographic authority with extremely little capacity to deliver. basis. More broadly, provincial authorities are (or The allocation of the envelope among provinces is should be) components of the administration of determined on the basis of population, with a lump public services in the areas of health, education, sum per province and further adjustments for the water, sanitation, and waste disposal. However, they results of annual performance assessments and also have roles in supporting private sector activity differing own-source revenue potential.102 As Figure in the different provinces, including in the areas of 50 shows, the result evinces considerable variation in agriculture and fisheries, and by their very existence, per capita allocations across provinces (and as was provincial authorities and the jobs they provide have clear from Figure 44, these transfers are dwarfed spurred the growth of provincial urban hubs around by CDFs). As an authority with regional reach and them. The extent to which the provincial government identification, though, provincial governments have system does serve to redistribute resources considerable potential for accountability and for geographically is limited by the level of resources connecting people to public authority. As such, they available to them, with underfunding relative to feature prominently in political debates over the their responsibilities a perennial problem (Cox and decentralization of service delivery, devolution of Morrison 2004). The aggregate envelope of funds powers, and shift to a federal system. for provincial authorities is a somewhat volatile Figure 49: Central government grants to provinces Figure 50: Provincial grants by province, 2015 SI$ % SI$m SI$ 180 7 16 450 160 14 400 6 140 350 12 5 120 300 10 100 4 250 8 80 200 3 6 60 150 2 4 100 40 1 2 50 20 0 0 0 0 Guadalcan al Choiseul Makira West Rennbell Temotu Central Malaita Isabel Honiara 2 006 2 009 2 008 2 007 2014 2016 2013 2015 2011 2012 2010 Provincial Grants Per Capita Provincial Grants (incl. fixed services, health and education) Provincial Grants per capita (RHS) as % of total budget (RHS) National Average (RHS) Source MoFT, World Bank staff estimates. Source MoFT, World Bank staff estimates. 153. CDFs now represent a major means for each constituency, since the population varies so for the redistribution of public resources on a much across constituencies, there are large variations geographic basis. Following their establishment in in CDFs per capita (as shown on a provincial basis in the early 1990s, there has been relentless growth Figure 44). Though there is no systematic evidence in the public resources allocated to CDFs and in of their use, CDFs fund anything from setting up their importance. That growth has only intensified constituency businesses (for instance, in shipping), in recent years (Figure 51). By providing public to providing households with solar panels or paying resources to national government MPs to spend their school fees, to distributing bags of rice at at their discretion, CDFs bypass the provincial election time. While they serve as a mechanism to government system. Their budget now exceeds that redistribute public resources across the archipelago, for provincial grants by a factor of six. In 2016, CDFs including directly providing some essential accounted for 8.8 percent of total expenditure (6.9 services to constituents (through water or energy percent from consolidated revenue and 1.9 percent infrastructure), their operation is widely recognized financed by Taiwan, China). Though equal in value as mainly patronage based (see Box 23). Beyond Honiara, provincial governments have few means to raise the direct revenues that provincial grants are meant to supplement (with 102 business license fees the main source, in some provinces chiefly from logging). | 88 Figure 51: Central government CDFs SI$ % Real CDF expenditure per capita 250 10 9 CDFs as % consolidated budget (RHS) 200 8 7 150 6 5 100 4 3 50 2 1 0 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source MoFT, World Bank staff estimates. BOX 23 THE POLITICAL ECONOMY OF CDFs CDFs are a cornerstone of contemporary patronage politics in Solomon Islands. They are both a cause and a consequence of the weak functioning of broader state institutions. The way the political system operates encourages MPs to secure the maximum possible share of public resources for CDFs and to focus on how these resources are spent in their constituencies. This detracts from the share of public resources available for broader public institutions and from political efforts to ensure those institutions operate effectively. MPs then see CDFs as means to deliver immediate and tangible benefits to constituents, which broader public institutions are not regarded as doing effectively. Popular sentiment on CDFs is often contradictory, with the behavior of voters enabling and encouraging the very system they despise. There is an unremitting stream of complaints about CDFs in the media and civil society forums. A dominant theme in these is criticism over the use of CDFs for the exclusive benefit of supporters, rather than all constituents. The media reports cases of constituents being denied assistance after constituency officers have checked lists of supporters compiled during elections and found that the applicants are not on them. The media also reports complaints about businesses or construction equipment established through CDFs being treated as the private property of MPs after they have lost office. There is an increasing degree of institutionalization of CDFs and some moves to penalize their misuse. However superficial in their effect, MPs have to lodge a plan for the use of CDFs with the Ministry of Rural Development, which expenditures are supposed to accord with. Though these plans are said to be public documents, they do not appear to be publicly available. Each MP employs a Constituency Development Officer, Project Officer, and Accountant on the public payroll, to administer and account for their spending. There is active consideration within the state of how greater accountability could be brought to the use of CDFs, including how constituencies could retain ownership of assets funded by CDFs, separately from MPs. There are also instances of MPs who are alleged to have stolen from CDFs being prosecuted. CDFs are likely to continue to pose fundamental problems for equity and cohesion. Research by the World Bank shows that CDFs are among the major causes of disputes and grievances in communities. (The same research shows that donor projects can similarly fuel local disputes and grievances over resource allocation.) Thus, even though Solomon Islanders tend to judge their MPs on the delivery of private or localized public goods, the perceived injustices over the use of CDFs are driving people apart at the local level. They contribute to a pervasive sense of unfairness about the current practice of politics and intensify long-standing grievances over geographic inequities in public spending and the dividends of citizenship and nationhood. By connecting the local directly with the national, CDFs further entrench central government as the key locus of power and wealth, a trend sidelining provincial authorities and seemingly inconsistent with aspirations to decentralize service delivery to provinces. Contestation over the use of CDFs could, however, spur improved accountability—at the very least, it signals the extent of local engagement in discourse over the use of these resources. Commentators vary over whether CDFs could become effective systems that could eventually be folded into the mainstream state or are fundamentally inconsistent with strengthened state capacity. Source Evans 2017; Craig and Porter 2014; Haque 2012. 89 | Vertical Systems for Redistribution been sustained through gift exchange, underpinned by Melanesian norms of reciprocity and obligation. 154. Alongside systems for redistributing In both rural and urban areas, these social relations resources from leading to lagging areas, social provide a ‘safety net’ in the form of resource transfers safety nets can play a role in assisting people during times of hardship—helping to mitigate large who have been unable to benefit from economic disparities in well-being and serving as a form of opportunities, wherever they live. Formal systems insurance against volatility and shocks (see Box of social protection in Solomon Islands are 24). It is a given that people will support their kin, extremely limited, however. There is a contributory with refusal to assist likely to result in antagonism pension scheme for formal sector workers which within kinship groups and potentially ostracism. has quite a large membership base (covering 44 The obligation to provide support is particularly percent of the working-age population), but its strong when it is known that the potential patron assets are extremely low by regional standards (at has regular access to money—for example a formal 1.2 percent of GDP—compared to 6.8 percent in PNG job, own business, student allowance, or royalties. and 18.6 percent in Vanuatu). That, combined with Household survey data provides evidence of the relatively low eligibility age for withdrawals (50 pervasive inter-household transfers, including years) means that many NPF members are likely remittances transferred within Solomon Islands and to have only partially funded retirements. Recent consumption goods received as gifts. One quarter political interference in the investment decisions of of rural households, for instance, have their income the NPF is a worrying sign for the security of that bolstered by remittances from kin working outside retirement funding. Government social protection the village (often in Honiara). While these informal programs are otherwise very small scale. Some social protection systems undoubtedly benefit many development partners provide forms of assistance in need, they do not necessarily provide adequate targeted at the poor and least well-off in conjunction support for all those in need, with some evidence with government, however. To date, these have of vulnerable groups falling through the cracks. mainly been in the form of cash-for-work programs Households in the bottom two quintiles who are (including the World Bank’s Rapid Employment unable to meet network obligations, may be liable to Project and SPC’s Youth at Work Program).103 benefit less from generalized reciprocity. As Figure 52 indicates, although on average households in 155. Informal systems serve as the main higher quintiles contribute more to other households providers of social protection in Solomon Islands. and church and community groups, the trend is not Traditionally, dense webs of social relations have so clear for contributions as a share average income. Figure 52: Cash and in-kind assistance given to other households and church and community groups, by quintile 8,000 8% To Other HH (left axis) To Church/Community (left axis) 7,000 7% To Other HH Average annual transfer per HH (SI$) Share of household resources (%) 6,000 6% (% HH resources; right axis) To Church/Community (% HH resources; right axis) 5,000 5% 4,000 4% 3,000 3% 2,000 2% 1,000 1% - 0% Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Source HIES 2012/13. 103 Many church groups, local NGOs, and international NGOs also work with vulnerable groups. | 90 BOX 24 VOLATILITY AND SHOCKS AT THE MICRO LEVEL Solomon Islanders are highly vulnerable to volatility and shocks in their day-to-day lives, largely as a result of geography and the structure of the economy, in combination with very limited means to mitigate exposure. Rural households are vulnerable to commodity price volatility and shocks for their cash crops and to oil price volatility and shocks (Table 11). Remoteness from Honiara magnifies the impact of changes in oil prices, with the markup on fuel that feeds into the cost of transport and all transported items up to 182 percent per liter in remote areas compared to Honiara. Rural households are also vulnerable to climate variability, climate change, and natural disasters, through their impact on subsistence and cash crop yields and the availability of agricultural land. The main way in which rural households mitigate the impact of volatility and shocks on their livelihoods if through ex post changes in their economic activities—for instance, changing the allocation of their effort between copra, cocoa, food crops, and fisheries depending on relative prices, climatic conditions, and pests that affect earnings. In this respect, expanding the set of options (such as through VCO as an alternative to copra) adds to the ability of rural households to mitigate the effects of volatility and shocks. Table 11: Coefficients of variation for key import and export commodities (%) Imports Exports Coconut Oil Logs Palm Oil Copra Cocoa Nickel Gold Oil 1977–86 35.8 24.0 27.5 38.8 36.6 27.1 17.3 36.6 1987–96 18.2 30.3 26.6 24.8 23.7 20.4 39.3 8.8 1997–06 51.0 15.7 25.8 25.3 25.6 22.5 61.7 28.3 2007–16 23.1 15.3 21.5 33.0 33.4 16.6 45.6 27.7 Source World Bank Pink Sheet. In urban areas, households are more vulnerable to food price volatility and shocks, while households in natural resource enclaves are highly vulnerable to commodity prices. With less than half of urban households having a vegetable garden, urban households are typically more dependent on purchased food than rural households, with the price of imported rice particularly important. Like rural households, they are vulnerable to oil price volatility and shocks, directly for fuel and indirectly through international transport costs for all imported items. In areas dominated by natural resource extraction, households are particularly vulnerable to commodity price shocks, primarily through employment. This vulnerability was starkly illustrated in 2009, when demand for logs in China contracted sharply, as well as in 2014, when the low gold price contributed to the corporate decision to close the Gold Ridge mine. The flooding of the tailings dam after heavy rains was also a major factor contributing to that closure and loss of mining jobs. While the addition of nickel mining to gold and bauxite mining might yield a partial hedge effect at the macroeconomic level, the volatility of nickel prices will still yield significantly volatility in livelihoods for those dependent on nickel mining. In the absence of formal social protection systems, Solomon Islanders primarily turn to kinship and other community groups, like churches, for assistance in the face of hardship. Aside from reallocating effort between the few available economic opportunities, there are few options but seeking assistance through these informal systems. Even without the development of formal social protection systems, household and community resilience to volatility and shocks could be further supported through many mechanisms, including more resilient agricultural varieties and practices and more resilient community infrastructure. 91 | 156. Since uneven development is likely to large-scale mining develops, will be critical to become more—not less—pronounced in Solomon Solomon Islands’ growth prospects and chances Islands as the country develops, mechanisms of avoiding further conflict. Scope for formal to mitigate its effects will become increasingly social protection systems is obviously significant, important. This section has emphasized the given that they are almost non-existent at present. importance of connecting people and their products However, little is actually known about the extent to to urban and other centers of growth, both to increase which people fall through the gaps of the informal the growth effects of those centers and to enable systems. Filling this knowledge gap is a prerequisite a wider set of people to share in their benefits. It for assessing the value of building formal social has also emphasized the importance of mechanisms protection systems. Nonetheless, it is abundantly to secure an appropriate share of the returns from clear that Solomon Islanders face considerable those growth centers, for redistribution through volatility in their livelihoods, so mechanisms to public service delivery and infrastructure provision mitigate that need to be explored (with types of across the country. Strengthening public sector mechanisms that do not depend on identifying those capacity to play this role effectively, particularly if affected likely to be more feasible administratively). | 92 7. CONCLUSION 7.1 Summary of the Core they intersect with—harnessing and reinforcing— changing distributions of socioeconomic power. Development Problem Changes in the structure of the economic activity can alter the distribution of economic power in ways 157. This SCD has explored how the combination that offer scope for political economy dynamics of Solomon Islands’ economic geography and to change, which may be able to be harnessed political economy drive uneven development and to generate more pro-developmental political militate against the emergence of the kind of economy dynamics. At the current juncture, there state functions needed to manage it effectively. are going to be changes in the structure of economic The particular economic geography of Solomon activity—definitely with the decline of logging and Islands leads to both pronounced spatial disparities hopefully also with the emergence of new sources of in development and an economy that is highly growth, with potential in mining more immediately dependent on rents. At the same time, its political and tourism in the longer term. If changes in the system combines with the existing distribution distribution of economic power associated with of economic power and historical social context the emergence of new sources of growth can of predominant local identities, to yield a non- support more pro-developmental political economy developmental political economy equilibrium. Given dynamics, the wider benefits of these new sources spatial disparities in development and the rent- of growth will be magnified considerably. dependence of the economy, a state that is capable of securing an appropriate share of these rents 159. On the fragility outlook, the prospects for and redirecting them to the benefit of the wider avoiding further large-scale conflict are reasonably population is critical to poverty reduction, broader positive, though subject to a number of key risks.104 economic growth, and national stability. As yet, state A number of factors augur against a return of the kind institutions capable of doing this effectively have of conflict experienced in the tension, particularly not emerged in Solomon Islands. Instead, the lack the legacy of RAMSI and continued Australian of a political settlement between the main political security guarantee. In addition, the cohort of militant and economic power holders in favor of investing leaders from the tension has largely moved on (with in effective state institutions has combined with the many remaining in prison and others having taken economic geography of Solomon Islands to limit the up roles in politics or business), and high-powered reach of the state in important ways. These include weapons appear to have largely remained out of the the limited extent to which the state secures an community.105 There is widespread public aversion to appropriate share of natural resource rents and the returning to the ‘dark days’ of conflict, and political limited political impetus for effective service delivery elites are not making the same kind of aggressive through core state systems. Political incentives public statements that characterized the lead-up are more narrowly focused around the delivery of to the tension. Weighing against these factors, the goods and services directly to constituents through underlying drivers of the tension—contested state the parallel system of CDFs. legitimacy, uneven development, rapid and largely unmanaged urbanization, and contested land and 158. These fundamental political economy natural resource control—remain to be addressed. dynamics have proven extremely durable over With the economy growing only slightly faster time, but they are not uncontested and nor are they than the population and the age structure of the immutable. Contestation comes from civil society population very young, economic growth and the groups and private sector institutions with broader growth of paid employment are insufficient to meet interests in state regulatory and service delivery the rising expectations of Solomon Islanders— capabilities and is raised in the media and social especially the growing ranks of school leavers and media. It also comes from within the bureaucracy, university graduates. Increasing competition for with pockets of senior officials dedicated to public scarce jobs, land, housing, and essential services in interest concerns—however little political cover they Honiara, combined with pervasive disaffection with receive. Donors are important players in this space, ‘the government’, the practice of politics, and lack adding to the resources of civil society and private of voice for youth especially, is likely to continue sector groups, promoting alternative agendas in to lead to episodic destabilizing acts of public policy dialogue, altering the distribution of resources violence (as occurred in 2006, 2009, and 2014). through the public services they support, and Further urban encroachment onto customary land altering lines of accountability within the state—not poses specific conflict risks. Increasing social and always with desirable outcomes. Significant impacts economic stresses could overwhelm the hybrid from processes of contestation are most likely when 104 The fragility outlook presented in this section draws heavily on Allen (2017) and Evans (2017). 105 The large numbers of armaments believed to be extant on Bougainville and the porous maritime border raises the possibility of clandestine and possibly rapid rearmament in Solomon Islands, however (Allen 2017). The firearms amnesty now in place just before the conclusion of RAMSI indicates recognition of continued risk. 93 | forms of authority that mediate disputes and Critical Priorities conflict at the local level, as they are already doing in some instances. The development of large-scale 161. This first tier of priorities is composed of mining also poses specific conflict risks. In addition those that are highly relevant to growth, equity, to these broader factors, the more proximate factors and security, and where there is some possibility— precipitating the tension could be repeated, with the even if small—of achieving an alignment with the decline of logging disrupting the existing distribution incentives of political elites. Included under this tier of rents and potentially provoking fiscal instability, are priorities in respect of smallholder agriculture and the possibility of instability in Bougainville and fisheries, urbanization and connectivity, mining around its referendum on independence in 2019.106 governance, and local-level institutions of public With respect to logging, the ongoing exhaustion authority. These priorities are not only critical of more readily available forest stocks is increasing in themselves, but form the basis of a coherent the impetus for logging in areas where communities and mutually dependent reform program with have remained united in opposing it till now, making the potential to help Solomon Islands realize its it likely that progressively more communities will be immediate opportunities while managing its most subject to the social disintegration and erosion of pressing fragility risks. The development of large- rural resilience that logging precipitates. scale mining is the only feasible way for Solomon Islands to manage the macroeconomic challenges 7.2 Priorities for Supporting Poverty posed by the decline of logging over the medium term. Though large-scale, mechanized mining is Reduction and Promoting unlikely to be inclusive from a jobs point of view Shared Prosperity and will also be spatially concentrated, potentially exacerbating conflict risks. It is therefore also vital 160. In selecting a set of strategic priorities to to invest in mechanisms to spread the benefits and support poverty reduction and promote shared mitigate the risks both within the sector and more prosperity in Solomon Islands, this SCD uses three broadly through (a) ensuring an effective rural main considerations. The analytical framework of safety net, by supporting livelihoods in smallholder the SCD helped to identify potential priority areas for agriculture and fisheries; (b) facilitating the further accelerating poverty reduction and shared prosperity, development of the urban services economy under the pillars of strengthening the foundations and its linkages to the wider national economy, of well-being, achieving inclusive and sustainable as mining revenues are recycled through public growth, and managing uneven development. These sector spending; and (c) strengthening local-level potential areas are now prioritized according to three public authority to address existing and potential main considerations. The first is the relevance of the new sources of contestation and conflict as wider area to security (mitigating the risks of fragility, structures of economic activity undergo an intense conflict, and violence), to sustained and inclusive period of change. growth, and to equity (a substantial positive impact on the well-being of the poor and less well-off). The Supporting the productivity and resilience of time frames over which these impacts are expected smallholder agriculture and fisheries, including is part of this consideration. The second is our level their contribution to nutrition of confidence that the relevant constraints have been accurately identified along with technically 162. It is critical to improve the ability of Solomon feasible means of addressing them. The third is the Islanders to obtain food and nutrition through degree of alignment between the priority and what smallholder agriculture and fisheries activities, an can feasibly emerge from the policy arena, given ability that the majority of the population depend the political incentives of relevant elites under the on, but which is currently under threat. existing distribution of power in the country. In line with WDR2017, this is not a static consideration • Relevance. The productivity and resilience but instead takes into account the potential for of both subsistence and semi-commercial the policy arena to be reshaped through the levers agriculture and fisheries is of overwhelming of contestability, elite incentives, and the ideas, importance to security, growth, and equity. preferences, and beliefs of participants in the policy It is of immediate and direct importance to arena. It also accounts for how, over time, policy the well-being of the rural population, as outcomes might alter the underlying distribution of well as many urban residents, with nutrition power to allow for a broader range of policy options of particular significance to child health and in future. The judgments behind the application of cognitive development. A vibrant agricultural these considerations to the possible priority areas and fisheries sector has the potential to are set out in the narrative below. underpin growth over the short term and on a sustained basis. More productive and more resilient agriculture and fisheries is vital to mitigate pressures that may otherwise build with population growth and climate change toward disputes over increasingly 106 Government-endorsed compensation processes have also helped to perpetuate organized militant groupings. | 94 scarce land and sea resources, as well as The approaches on the research and delivery sides to reduce push factors in urban migration. in agriculture and fisheries should be informed by nutritional concerns and linked to complementary programs promoting demand for nutrition (in rural • Confidence. There is reasonable certainty health clinics, for instance). In terms of alignment over the constraints faced and over technical with political interests, a strategic dialogue is likely aspects of ways to address them and a to be essential to share ideas on how livelihoods reasonable body of experience to draw on and income-earning opportunities for smallholders in respect of what has and has not worked can be enhanced. Initiatives that could be well previously. There remains, however, some supported by or delivered through CDFs (whether uncertainty over effective means to assist agricultural service delivery or infrastructure to producers in this context, especially given the support supply chain development to urban or limited rural reach of the state and also given other growth centers), would also be useful ways the very different role the state would need to to strengthen that alignment. The dialogue could take on from its current one, to support CBRM also help preempt challenges that might otherwise in fisheries. undermine initiatives—such as the likelihood that exporters of high-value marine species will contest • Alignment. While political elites are clearly CBRM mechanisms. very interested in rural development, they do not prioritize supporting it through core Supporting the effective functioning and state systems. Some of the limitations of connectivity of urban and other growth existing public sector support to smallholder centers, to increase their contribution to growth agriculture and fisheries could fairly be and well-being in both urban and rural areas attributed to the immense challenges of providing assistance to a rural population so 164. It is critical to improve the functioning thinly dispersed over such divided territory, and connectivity of Honiara, in particular, as well but the recurrent budgets for agriculture and as other growth centers around the country, to fisheries are small and glaring omissions—like increase their ability to drive broader economic rebuilding public agricultural research and growth and improve the well-being of urban and development capability after the facilities rural communities. were destroyed during the tension—remain. The extent of political concern with rural • Relevance. The functioning and connectivity development would imply, however, that of the urban service economy of Honiara as there is scope to achieve the necessary well as of other growth centers is vital not only alignment, including through changing ideas to the livelihoods of urban residents, but also about the most effective ways to improve to livelihoods in all communities connected rural livelihoods. with them by land or sea. The potential impacts on the urban poor (many of whom are 163. A useful approach may be to consider how unable to access essential services and have state and non-state institutions might complement limited livelihood opportunities) and the rural each other in providing support to smallholder poor (who similarly lack access to essential agriculture and fisheries, and to focus on how services and need market access for their these initiatives align with political interests in products), are very significant. This includes rural development. This would involve identifying the way full coverage of Honiara can support how critical research and delivery capabilities could essential service provision in smaller centers be obtained. For research, this could mean bringing and beyond, by lowering the unit cost of these in improved varieties developed in similar contexts services. The functioning and connectivity of (like PNG), or scaling up in situ work by partners like Honiara is critical to security, because private SPC and FAO, given that an in-house capacity cannot sector activity in the urban service economy is feasibly be built in the near term. For delivery, this a key channel for the redistribution of natural could mean involving the private sector, churches, resource rents in the broader economy. NGOs, or other institutions (like the World Bank’s Maximizing opportunities through backward Rural Development Program) with rural reach, linkages from that spending in urban and rural to support producers to adopt more productive areas is likely to support stability. and resilient varieties and methods. Central and/ or provincial government capabilities to support • Confidence. There is considerable certainty extension service providers and coordinate their about what constrains the functioning and work with other relevant programs (in rural service connectivity of Honiara and other growth delivery, for instance) to make it more effective, centers, including in infrastructure, essential would need to be strengthened. For fisheries, services, land access, and the business central and/or provincial government capabilities environment for the formal private sector. to provide support services for local resource There is considerable uncertainty, however, managers would similarly need to be strengthened. about how these constraints could be eased, 107 The technical assistance that the ADB is starting to provide for the development of a ‘Greater Honiara Urban Development Strategy and Action Plan’ should help to provide clarity on some of these issues. 95 | given the way power, authority, interest, impedes rural development and service provision (as and capability are distributed among many with the clear financial link between SIEA’s coverage different state and non-state entities at in Honiara and its outstation initiatives, or with the many different levels.107 There is also limited interlinked interests of tourism businesses, urban knowledge of key weaknesses in the business centers, and connectivity in Western Province). environmental for informal private sector actors. Supporting effective mining governance and measures to spread the benefits of mining • Alignment. While the extent of political antipathy toward urbanization and urban 166. It is critical for Solomon Islands to secure issues indicates their lack of alignment—in the development of its mining industry as a driver themselves—with political interests, political of economic growth and to spread the benefits elites are strongly interested in connectivity as far as possible through backward linkages and to spread the benefits of growth into rural nationally through public expenditure. areas. This suggests an avenue for an indirect interest in the functioning of Honiara and • Relevance. The SCD has argued that other growth centers, though with 47 of the Solomon Islands in the unenviable position 50 MPs elected from the provinces rather than of depending on large-scale mining to Honiara, there are clear structural constraints manage its transition out of post-conflict to this interest. Enhancing contestability in levels of aid and unsustainable logging. The the policy arena would thus be advantageous end of logging presents major challenges and should be feasible given the extent of to economic growth and macroeconomic private sector, civil society, HCC, and GPG sustainability. Mining represents the only interests in tackling urban management industry that can feasibly replace logging concerns, including as recent evictions in contributions to macroeconomic aggregates informal settlements have shown. Successes over the medium term, though whether it in improving the functioning of Honiara does so in time depends both on the timing are likely to further enhance contestability, of the decline in logging and the effectiveness because of the importance of the urban space of the governance of mining. Making mining for the voices of women and youth. governance sufficiently effective to secure the benefits and mitigate the risks of mining 165. A useful approach would be to identify is vital. The industry itself is likely to create existing initiatives or openings for better urban relatively few direct jobs, though additional management as well as key gaps in connectivity jobs and wider growth benefits could come impeding backward linkages and to consult from backward linkages to agriculture, stakeholders to see if additional external fisheries, transport, and other services and assistance could be useful. With respect to urban from the infrastructure and essential service management, existing initiatives and openings developments around mining operations. include the MLHS’s efforts to formalize the titles More important is likely to be public of residents in some informal settlements, SIEA’s expenditure on human and physical capital attempts to expand electricity access in informal that the state could make it if secures an settlements and peri-urban areas, the dialogue appropriate share of the rents from minerals fostered by recent Australian National University extraction. By this means, mining rents will research on urban development in Honiara, and the also be recycled through the urban service opening to consider broader land issues precipitated economy. Spreading the benefits as widely by the recent evictions. Local actors are seeking to as possible through backward linkages and increase contestability in the policy arena through, public expenditure will be vital to mitigate for instance, regular mechanisms for private sector the conflict risks associated with large-scale dialogue with central government, civil society mining, as will stakeholder benefit-sharing discussion forums that are beginning to involve arrangements and effective environmental MPs, and proposed regular joint sittings of HCC and regulation. GPG assemblies. With respect to connectivity, there is a clear link between this priority area and the • Confidence. There is solid body of knowledge previous one on supporting smallholder agriculture on what is needed to enable mining and fisheries. In relation to connecting rural areas development to drive broader economic to urban markets, the MID has undertaken planning growth and contribute to public investment work on improving road connectivity around Honiara in human and physical capital. There is also and to underserved areas of Guadalcanal, there are growing experience in relevant comparator plans to add new routes to the FSS, and domestic countries, like PNG, on effective ways to port services in Honiara are being improved. Apart manage conflict risks. from supporting key existing initiatives and moves to enhance contestability, there might be a useful • Alignment. The interest of political elites role for external partners in dialogues with political in mining development is obvious, but with leaders on the extent to which the functioning respect to mining governance their incentives of urban and other growth centers facilitates or have skewed the governance framework to | 96 date toward retaining political discretion over partners in supporting the capacity of the state to decision making and securing short term negotiate effectively with global mining companies, gains at the expense of long-term benefits, supplementing its capacity to secure its designated protection of human and environmental share of the rents from mining; supporting more health, and mitigation of conflict risks. Given effective public expenditure in key areas from just how big the gains from effective mining mining revenues; supporting the operation of the governance could be in Solomon Islands, ‘Development Forum’ and proposed advisory it must be possible for political elites to be center to enable the effective participation of all better off with access to the larger pie that key stakeholders (including as a means to support effective governance could yield, than under environmental regulation); and working with private the current approach. At the same time, sector operators and on connective infrastructure there is scope for the political economy and essential services to maximize the backward dynamics of the prospective nickel mine linkages and wider growth benefits from mining to be quite different from the mining (and operations.108 While the existing political economy logging) preceding it, and this could facilitate context and experience to date suggests the the emergence of more pro-development likelihood of achieving effective mining governance political economy dynamics. This centers on is small, the costs of failure would likely be very high, the interests of a large-scale, long-life mine making the attempt of critical importance. with heavy up-front investment in maintaining a long-term social license to operate, which Strengthening local-level institutions of could support—or even require—the existence public authority of public authorities capable of containing conflict risks (including by mitigating 168. It is critical for Solomon Islanders to have spatial disparities through effective public access to some form of local public authority, to investment). It also centers on the feasibility of support security and justice and to increase their the state reckoning with a large-scale mining ability to articulate their priorities to the state for operation in a fixed location (relative to many, the use of public resources. small, remote, and constantly shifting logging operations). Complementary work to build a • Relevance. Local-level law and order is not governance framework and make the case in only critical to security and social cohesion, dialogue for how it can better serve political but it is also a foundation for economic activity interests than current approaches will be and growth and also for equity. Institutions critical. Increasing the contestability of the of public authority at a decentralized level policy arena will also be critical, to promote can be important means for linking citizens equity in benefit sharing and to mitigate into the state system, providing potential conflict risks. for them to articulate their priorities and for the state to respond to those. This is 167. A useful approach would be to start with the of particular significance in an economy interests of political elites and develop the case for dominated by natural resource rents, where how those interests could be better served within public expenditure is an important means for a regime of effective mining governance than they sharing the benefits of natural resource-based have been in the past. The adoption of the NMP industries with the wider population. provides a very good foundation for this dialogue, as long as the approach recognizes that everything • Confidence. While a large degree of is yet to play for—no laws, regulations, institutions, uncertainty inevitably attends the means to or norms of conduct have been developed under build local-level institutions of public authority, it yet. To align developmental interests in mining since what will be effective is highly context with political incentives, there must be sufficient specific, the Community Officers Program political gains within an effectively governed sector that the World Bank is supporting in Solomon to exceed those available from acting outside such Islands is demonstrating good results, both a governance regime. That is, if all the avenues for in local-level dispute resolution and in linking political gain are shut down by the governance people to the broader state system. This framework, political elites will have a strong incentive suggests that an effective approach has to act outside it. ‘Good-enough’ governance already emerged. Part of its effectiveness is and institutional solutions will be required that due to its flexibility—even between the two address key risks and ensure some public capture provinces where it is established, there are of rents, while still ensuring compatibility with the significant differences in the way it operates. structure of incentives facing political elites. Such This flexible approach should enable its solutions are only likely to emerge from having successful expansion to other provinces, political leaders and their concerns engaged where it can also take contextually appropriate in the processes of designing the legislative, forms to fill the same types of functions. regulatory, and institutional framework based on the NMP. There may also be roles for development The small bauxite mine approved on Waghina Island could offer all stakeholders a bridging opportunity for work on mining governance and 108 benefit spreading, before the potential large-scale nickel operation begins. 97 | • Alignment. The local level appears to be a is highly relevant to equity and long-term site of serious investment by political elites. economic growth opportunities, as well as The experience to date with the Community to social cohesion, citizen engagement, and Officers Program indicates significant political public sector performance. Limited quality interest in local-level institutions of public and access in basic education appears to authority and serious investment by senior be a matter of both supply and demand. policy makers in supporting these institutions Supply-side factors (including school places, to work and in considering how they can qualified teachers, and learning materials) serve an expanded set of purposes over time have received considerable attention to date, and space. though significant gaps remain and efforts to fill these remain important. Demand-side 169. A useful approach would be to continue factors (including accountability for teacher with and scale up the kind of approach to building performance and school management) have local-level public authority that has been taken received some attention, but there has been in the Community Officers Program to date. little progress in the MEHRD, provincial or At its core, it involves communities in choosing church education authorities, or communities the person who will facilitate local-level dispute holding teachers and schools to account. resolution, allows the form that this function takes Even if communities value quality education, to fit the local context, and provides support for the there appears little immediate prospect of formation of horizontal and vertical linkages with the community-level accountability mechanisms role. The horizontal linkages are often with informal being effective, if they are not backed by institutions (chiefly and church systems) that also vertical accountability through the MEHRD or bear on the management of local-level disputation. the relevant education authority. Also, that is However, they can also be with formal institutions— a very challenging situation to change, given like the authority structures involved with CDFs and both the near-exclusive political interest in the World Bank’s Rural Development Program. This tertiary scholarships and the myriad of school points to some of the potential of the local authority sites that need to be accounted for. If the supported by the Community Officers Program to READ-PNG project is found to yield sustainable intersect with institutions of political salience, in gains in a similar context, the potential for productive ways. The vertical linkages are primarily near-term change in Solomon Islands would with RSIPF and provincial authorities, helping people seem more positive, but otherwise it seems to connect with the larger state systems that are that stronger local-level or devolved public otherwise often beyond their reach. This also points authority may be a prerequisite for addressing to some of the potential of the local authority to demand-side factors. Supporting that first is connect people to an array of broader state systems the primary reason education is treated as a to articulate service delivery priorities and facilitate ‘next tier’ priority. accountability relationships, for instance in the areas of health and education. These connections • Supporting significantly expanded access could prove particularly useful from a demand and to improved water, improved sanitation, and accountability point of view, if they intersect with waste disposal services. Expanding access initiatives to deconcentrate aspects of service to these services is critical to well-being, delivery (as currently planned in health at the in particular for the poor and less well-off. provincial level) or with broader intergovernmental Expanded service provision would also have reforms (as under the proposed review of the important complementary benefits for the Provincial Government Act). Over time, such forms environment (affecting the benefits people of local-level public authority could potentially can derive from environmental assets, as in underpin a more positive political economy through agriculture and fisheries, as well as the long- citizen-based engagement and accountability links term potential of tourism to be a driver of with state institutions, enhancing the responsiveness growth). Whereas in urban areas, improving of public expenditure and services to local needs. access to these services is largely about ensuring sufficient operational capacity of Next Tier Priorities the utilities and resolving the impediment to access that utilities are making of occupancy 170. This next tier of priorities is composed of titles, the situation is different in rural areas. It those that are highly relevant to growth, equity, would be valuable to build an evidence base and security, but where alignment is unlikely to on the variety of approaches taken to service be achievable in the near term. Or, in the case provision by communities, CDFs, provincial of tourism, there are more immediate economic authorities, central government, donors, challenges Solomon Islands has to address, for and NGOs, to understand what has worked, tourism investment to yield returns. in which contexts, and why. With respect to alignment, access to improved water tends to • Supporting the provision of quality, basic be prioritized by communities in community- education for all. Tackling the quality of driven development programs, so there may basic education at all levels, as well as access be immediate scope to support that priority. to it at the secondary level in particular, However, sanitation and waste disposal do | 98 99 | not tend to be prioritized by communities. It and to assess what the market potential could appears that state or non-state providers do be. If high-level support from the state can not have the reach, resources, or impetus to be secured, a capable development partner provide the kind of sustained support needed could then take the lead on coordinating work to create demand for behavior change. Also, on the necessary infrastructure developments neither political elites nor communities are to enable private sector tourism investment to likely to provide an impetus to change this realize that potential. The reason for placing over the medium term. tourism with ‘next tier’ priorities is because it is of longer-term significance for growth, • Supporting the provision of better quality equity, and security, and Solomon Islands health services for all. Improving health has more immediate challenges that it has to service access and quality is clearly relevant address for tourism sector development to be to well-being, equity, and long-term growth. feasible at all. Considerable attention has been paid to supply-side factors to date, with considerable • Supporting stronger fiscal and public success—as indicated by Solomon Islands expenditure management. This is extremely being on par or better than global averages important for growth, equity, and security on key health indicators for its income level. (particularly through effective service This makes further improvement in many delivery). There is a history of effective areas of health less of a pressing concern international engagement in customs and than in education, for instance. However, revenue administration, where there is some unlike in education, there are some initiatives alignment with political interests. Important underway in health that have some prospect of gains have been made and continued improving the accountability and performance assistance would be valuable. Extensive of the health system and some prospect of external assistance has also been provided for sustainability due to their potential alignment most areas of fiscal and public expenditure with the interests of political elites. These management in the post-conflict period, initiatives include deconcentrating power but the feasibility of continued engagement and responsibility to more appropriate levels being useful is questionable. Misalignment and implementing the RDP. They have the with prevailing political incentives, rather than potential for alignment with political interests the lack of technical capacity, is currently in local-level service delivery, which have to the binding constraint to sustainable date—in the absence of obvious alternatives— improvement on budget formulation, budget been channeled into investments from CDFs in execution, and expenditure management. clinics and staff housing without coordination That alignment may improve, however, as it with the MHMS on staffing and operational has done previously, as the fiscal situation expenses. So, though perhaps not so pressing, becomes more challenging. Otherwise, it is there appears more scope for alignment likely to be more feasible to address aspects of on these health reforms. One area that is fiscal management through narrowly targeted pressing is child undernutrition. In addition to work within other engagements, for instance addressing nutritional concerns in agriculture building on a mining governance engagement and fisheries (as above), it is clearly important to address tightly related fiscal issues. for measures to tackle undernutrition in the health sector to be prioritized. However, • Establishing formal social protection like measures in agriculture, this will only systems. Given how exposed especially tackle part of the problem. Global evidence poorer households in Solomon Islands are to suggests that the most significant gains are volatility and shocks and how limited their made through coordinated, multi-sectoral capacity to afford the goods and services strategies with strong political backing. they need may be in the wake of large-scale Effective strategies in contexts lacking such negative shocks, there seems a clear case commitment and with a low status of women for formal social protection systems for poor are less clear. and vulnerable households. There is a need, however, to gather evidence on the extent to • Catalyzing significant tourism development. which and circumstances in which people fall Tourism offers Solomon Islands the through the gaps of the informal systems, as opportunity to transform its long term growth a basis for designing contextually appropriate trajectory, with the growth it generates formal systems. Experience in Melanesia potentially inclusive and sustainable. It offers would suggest there is virtually no chance of the prospect for more widely distributed securing political support for such systems, at economic power than is the case for extractive least in the medium term, but this could be industries, which could also ease political considered an area of such significance to the economy constraints on future development. poor that it warrants establishment through Supporting this development is critical, parallel systems with development partner beginning with a prefeasibility study for support, potentially on a long-term basis. Western Province, to identify what investors regard as the key gaps to fill to make tourism an investible proposition for the private sector | 100 Other Priorities regulation of logging.109 Even if they could be aligned, the nature of the logging operations, 171. This third tier of priorities include those power of the landowners, and geography of where there is not such strong relevance to the archipelago makes it inconceivable that security, growth, and equity, where constraints are the state could build the reach and capability already being addressed reasonably successfully, required to regulate logging effectively in the or where the extent of their misalignment with elite few years logging is likely to continue on its incentives effectively makes them non-starters. current scale. • Supporting significantly expanded or higher 7.3 Overarching Implementation tier access to electricity. Constraints in Considerations this area are already being addressed reasonably successfully. 172. Having discussed above the priorities for poverty reduction and shared prosperity in • Increasing the share of rents secured from Solomon Islands, this section briefly outlines some the oceanic fishery and improving the overarching implementation considerations for sustainability of its management. Constraints engagements and projects. WDR2017 recognizes in this area either have been or are now being that the interaction between donor interventions addressed reasonably successfully. and local political economy conditions and power relationships has a significant impact on whether the • Enhancing opportunities for international interventions achieve their intended outcomes, have labor mobility. In the absence of major no impact, or lead to unexpected and potentially changes to labor market access in Australia or perverse results. Particularly where the resources New Zealand, Solomon Islanders are unlikely involved are substantial, the potential for donor to be able to secure much more representation engagements and projects to inadvertently cause in these markets, limiting the relevance of harm by damaging local accountability relationships this area. Until the quality of basic education or strengthening the power of interests that will improves, international labor mobility is also subsequently impede pro-development policies, likely to offer limited gains for the poor and must be accounted for. less well-off. 173. It is not possible to identify a specific • Reforming customary land governance and approach that, if applied to all engagements and public land administration. The initiatives projects in Solomon Islands would ensure they the government already has underway to deliver the intended results. Successful design consider alternative options for customary and implementation approaches are likely to vary land governance are the avenues most likely substantially by sector, project, and counterpart, to lead to general reforms. Development as well as over time. The following broad partners might have additional opportunities principles—based on the analysis presented in this to support change through narrowly targeted SCD—may be useful, however, in appropriately work within other engagements, for instance orienting approaches: a major tourism engagement for Western Province. Public land administration is likely • Potential engagements should be carefully to be more effectively tackled indirectly (as it screened for fragility risks, upstream. Donor relates to expanding access to electricity, for engagements may exacerbate drivers of instance) than directly. fragility, conflict, and violence if benefits are distributed unevenly across existing social • Strengthening the governance of CDFs. fractures or if they empower actors with The history of CDFs in the post-conflict era interests that are not aligned with social demonstrates their impenetrability to the cohesion. Dedicated resources for fragility direct influence of external actors, even those analysis will be important, and the analysis with significant leverage in the state. Influence must occur upstream to enable sectors and might more effectively be achieved indirectly, approaches to be chosen in light of fragility if other programs can intersect constructively risks—rather than sectors and approaches with CDFs, like the implementation of the being chosen without regard to fragility risks RDP in the health sector, the operations of the and project teams being left to do the best Community Officers Program, or the work of they can to mitigate these risks. Upstream the Rural Development Program. fragility analysis at the portfolio level could then be complemented with sector, agency, • Strengthening forestry governance. The and project-specific analysis. history of forestry governance interventions in the post-conflict era amply demonstrates that political incentives do not align with the 109 In their review of Australia’s forestry assistance, Hughes et al. (2010) stated, “For over twenty years repeated attempts had been made to inject sound management and strong technical parameters into SI [Solomon Islands] forestry policy... These had largely failed, leaving only traces of their efforts in discarded policy papers, unenforced regulations, and a few long serving FD [Forestry Department] staff who remember better days.” 101 | • Projects should account for the economic • Engagements should follow an iterative geography and political economy of approach to addressing the identified Solomon Islands. A thorough understanding development problems. All of the priority of the economic geography and political areas identified above have some bearing on economy context is a prerequisite for judging the distribution of power in Solomon Islands, whether projects are feasible. It is also vital so engagements in these areas are likely to for assessing whether engagements risk be contested and may yield unexpected altering the distribution of power in a way outcomes. An iterative approach, with room likely to impede pro-development policies for periodic evaluation and flexibility to in future. Such broader impacts should be alter the approach in light of what has been weighed alongside the more direct impacts in learned so far, is likely to be critical to project the project preparation process. effectiveness. • Trade-offs between immediate project 7.4 Key Knowledge Gaps effectiveness and the broader implications for state capability of parallel systems 174. While this SCD has benefited from the should be explicitly accounted for. Solomon considerable body of analytical work already Islands’ experience shows how resort to existing on Solomon Islands, limited data parallel systems can weaken the impetus to and information in particular areas did pose strengthen state capability, with weak state constraints. Some key knowledge gaps were filled capability in turn justifying further resort to in the course of preparing the SCD, through staff parallel systems. There may be a public good analysis of the 2012/13 HIES, the preparation of a argument for using parallel systems to deliver Risk and Resilience Analysis and the preparation of critical goods or services when such initiatives background papers on urbanization and informal are not aligned with political incentives. settlements, maritime and road transport, and the However, any resort to parallel systems should aviation sector. In parallel with the SCD, work is be considered very carefully, because of the also underway on infrastructure PPPs for industry resultant distortion of vital local accountability development, examining core characteristics of relationships, the infeasibility of all of the good PPPs and common pitfalls of bad PPPs, assumed future transfers of such systems particularly in contexts of thin public sector capacity into the state, and the extent to which this and significant power asymmetries between public fragmentation stretches state capacity even and private partners. Other key knowledge gaps are further, because the state still has to manage in the process of being filled, as with the agriculture the components of these systems that do survey that FAO is supporting and the mapping of intersect with it. powers and responsibilities for urban management that will be part of the ADB’s technical assistance. The remaining key knowledge gaps identified in the course of preparing the SCD are summarized in Table 12. | 102 Table 12: Key knowledge gaps • While detailed poverty analysis is possible on the basis of the 2012/13 HIES, the significant Poverty changes in methodology from the 2005/6 HIES means that it is not possible to draw robust Analytics conclusions about poverty and inequality dynamics over time. This is a critically important limitation to address. • The SCD highlights the high prevalence of stunting in Solomon Islands, but the evidence base on the extent to which access to improved water, access to improved sanitation, the quality Health of diets, or other factors like low levels of empowerment for women contribute to stunting in this country context needs to be built. This would then enable appropriate interventions to tackle the key causes to be designed. • While the World Bank’s READ-PNG project has yielded significant improvements in literacy results from an array of coordinated interventions in the education sector, it is not yet clear how sustainable these improvements will be over time. This is an important consideration in how applicable a similar approach could be to Solomon Islands. Education • It may be important to gather evidence on whether the language of instruction is in fact a binding constraint on educational attainment in Solomon Islands, as might be indicated by the large difference between literacy and numeracy performance and the success of mother- tongue teaching pilots. If so, the strategy to improve outcomes would need reformulating. • The SCD highlights the high prevalence of stunting in Solomon Islands, but the evidence base on the extent to which access to improved water, access to improved sanitation, the quality Essential of diets, or other factors like low levels of empowerment for women contribute to stunting in Services this country context needs to be built. This would then enable appropriate interventions to tackle the key causes to be designed. • While coastal fisheries are broadly recognized as being fully exploited or overexploited, data Fisheries on fish stocks are scarce, a critical priority for supporting evidence-based CBRM. • Despite a range of studies over previous decades, repeated projections of log exhaustion have failed to materialize and log export volumes reached their highest level yet in 2016. An updated assessment of remaining stocks and the likely trajectory of log volumes over the medium term would facilitate a better understanding of the likely extent and timing of the macro-fiscal adjustments facing the country. Forestry • Little is known about the commercial viability of plantation forestry in Solomon Islands. There are two commercial plantations in operation, but both are on alienated land. It is important to assess whether smaller-scale plantations on customary-held land could be economically viable, not only in the context of providing future income-generating opportunities in rural areas, but also in the context of mitigating the environmental impacts associated with current logging practices. • A prefeasibility study is needed for Western Province, to identify what investors regard as the Tourism key gaps to fill to make tourism an investible proposition there and what the market potential could be. • Aside from data on CDFs and some provincial grants (administration, health, and education Fiscal Analysis grants), public expenditure data disaggregated by geographical region are unavailable, limiting the extent to which patterns of public resource distributions can be analyzed. • The SCD highlights the high prevalence of stunting in Solomon Islands, but the evidence base on the extent to which access to improved water, access to improved sanitation, the quality Private Sector of diets, or other factors like low levels of empowerment for women contribute to stunting in this country context needs to be built. 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